Kate Upcraft has discovered how some of the design features of dynamic coding are impacting taxpayers, employers and tax agents.
It’s now two months since HMRC rolled out dynamic coding for PAYE, using both taxpayer and employer reported data much more quickly to effect changes in employee’s tax codes.
Embrace your PTA!
The Personal Tax Account (PTA) is the main vehicle through which HMRC gives taxpayers a view of what data it is holding about them. I choose these words carefully as it is not (despite what HMRC helpline staff may tell employees) necessarily just the information which the employer has reported.
We must encourage all employees and pensioners to activate their PTA and lead by example. It’s surprising how many finance professionals I meet who have not activated their own PTA.
Check and react
Dynamic coding is built around the concept of Estimated Pay (Est Pay) which drives the allocation of allowances, decisions about primary income sources and ultimately, therefore, an employee’s PAYE tax code. As employers or agents submit FPSs the Est Pay changes, and this can, in turn, lead to a revised code.
The main landing page for PAYE within your personal tax account allows you to:
- view your income streams and see which one HMRC considers your primary source;
- amend your estimated pay by selecting the ‘check your taxable income tab’; and
- look at your current tax code and its constituent parts and inform HMRC if allowances or reliefs are incorrect.
You need to check all of these elements to see that you agree with assumptions that have been made by HMRC. If you get a text message from HMRC saying your estimated pay has been amended then react to it immediately, as the impact of dynamic coding on your net pay can be significant as Sarah Bradford outlined.
Trigger events
The main trigger events which have been deployed so far to change PAYE codes under dynamic coding have been:
- reacting to changes in annualised estimated pay reported by taxpayers;
- reacting to reports of benefits in kind from employers (P11D, P46(car)) or from taxpayers;
- reacting to reports from taxpayers of allowances/reliefs changing.
The most recent HMRC agent webinar on dynamic coding said that another trigger would be deployed in November around fluctuations in pay reported by employers, but there is no detail on this yet.
What problems have emerged so far?
The main problems involve the interpretation of irregular amounts such as bonuses, commission or variable pay.
Variable pay
The Full Payment Submission (FPS) simply reports total taxable pay for both the current period and YTD. If those figures increase, and another trigger has caused HMRC to review the code at the same time, for example, a bonus in August at the same time as a P11D is processed, HMRC extrapolate that to mean there has been a permanent uplift to salary.
Where this higher Est Pay takes an employee over £100,000, personal allowances start to be tapered away and those allowances are fully removed if Est Pay is £123,000 or more.
| Action: tell employees about this feature of dynamic coding. If they are notified about a tax code change, they can go into the PTA and reduce their Est Pay as long as they don’t try to reduce it below the YTD figure that has been reported by their employer so far. This will restore their allowances. They can also speak to HMRC directly on 0300 200 3300. |
Employees should be aware that the PTA displays all the FPS received, not just the latest YTD figures. However, the total at the bottom of the breakdown screens is derived from other HMRC sources and is a YTD figure.
If the employer sends several FPSs in a month as amendments are made, all these will be displayed, and they won't add up to the YTD which has been used to calculate the code.
| Action: if you regularly send more than one FPS for a tax period, warn employees that the YTD figure is what they need to check on their PTA, not the individual submissions. There is no warning about this on the breakdown screen. |
We still have the spectre of duplicated records hanging over all PAYE schemes. Despite HMRC’s assertions that they have finessed RTI to stop their systems interpreting a change in personal data as a new source of income, it still happens far too regularly.
For example, I have been attempting to correct the code of an employee, where the insertion of an employee number for pension purposes in July led HMRC to assume he had two employments with the same employer, and consequently an incorrect reallocation of allowances.
I have been told by both the employer helpline and the personal tax helpline that the taxpayer cannot remove a duplicated employment through the PTA, this must be done by a phone call from the taxpayer.
| Action: where this message appears on the screen: “If there is an employer or pension that is missing, has ended or is duplicated, tell us what to change”, the taxpayer must call HMRC. |
HMRC staff on some of the dynamic coding webinars have told agents that it is an employer’s responsibility to inform HMRC as soon as a new benefit in kind is provided – it isn’t.
Employers report benefits in kind via the P11D after tax year end and quarterly on the P46(car) in the case of new company cars and fuel benefit. If an employee wants their tax code adjusted to reflect a benefit in kind they need to tell HMRC via their PTA. This will trigger an in-year adjustment that will collect all the tax due for 2017/18 in the months that are left in the year by putting the employee on a non-cumulative code.
So, the later in the tax year the benefit is reported, the more significant the impact of informing HMRC.
| Action: Ensure employees understand the impact if they choose to report a new benefit in kind. If the tax due after the PAYE code is altered is less than £15 for the next tax month, the code will be issued cumulatively – if it’s £15 or more the code will be issued non-cumulatively. If the taxpayer would prefer the code is operated cumulatively so they pay all the underpayment in the next pay period, they need to call HMRC to request this. |
| Action: If the employer is payrolling benefits, then the employee must not tell HMRC about the benefit as it has already been taxed at source. There is no warning message on the PTA about reporting payrolled benefits. |
Overseas issue
Employees who are liable to foreign tax as well as UK tax under PAYE on the same earnings can be relieved of this double charge to tax by applying to HMRC to use Appendix 5 “net of foreign tax credit relief”. It appears that dynamic coding is not dealing with the foreign tax credit and is calculating an in-year adjustment equal to the foreign tax that has already been paid.
| Action: Affected employers should discuss this urgently with their HMRC contact or tax agent, and warn the affected employees. |
One of the selling features of dynamic coding was that taxpayers who overpay tax will now get refunds in-year. However, a micro-employer (particularly care and support employers with a fixed local authority budget) will not be able to fund these tax refunds as they have insufficient other tax and NI to offset them against.
| Action: HMRC has introduced an advanced funding for refunds service that is supposed to work like advanced funding for statutory payments. |
What can agents do?
Tax agents can’t access their client’s PTA even if they have authorisation to act, so any changes the client asks their agent to pursue must be done by telephone. HMRC says they are working on giving agents a view function for the PTA, but not an update facility and no timescale has been given for that enhancement.
We are learning more about dynamic coding all the time, but mainly through customer feedback as official guidance is still limited. I’m sure we’ll be returning to this topic regularly over the coming months.
About Kate Upcraft
Kate is a technical writer, editor and lecturer on all aspects of employing people - primarily payroll and HR matters.
Replies
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Great article and much easier to understand what HMRC are trying to achieve than any of their own webinars/websites. Sometimes I wonder whether HMRC staff understand their own systems; my client received a new code K1483 under the new dynamic system (which neither of us understood where figures had come from), and I assumed would be amended correctly once SA had been submitted. This didn't trigger off a new code so I called them, eventually we agreed on 500L - big difference!
"It’s surprising how many finance professionals I meet who have not activated their own PTA."
For some reason, I can't get through the security. None of the online guidance and FAQ's have helped.
I just do not understand HMRC. Every simple thing is made difficult.
Just have payroll record BIK. Its not rocket science as used in many countries. I was using it 20 years ago (other jurisdiction)! Then RTI will update records.
And yes I do not have a PTA. The work involved is such I just feel so demotivated. I just cannot see many individuals doing it. Certainly not the older ones.
Then I just do not trust the IT of HMRC. Too many errors.
"We must encourage all employees and pensioners to activate their PTA"
1. I have power of attorney for an elderly relative who can no longer deal with such matters. Can you perhaps direct me to any HMRC guidance on opening another person's PTA in my capacity as their attorney?
2. Many of my clients use an agent precisely because they lack any, some or all of the capacity, skills, inclination or time to deal with such matters.
Why does HMRC continue to refuse to allow authorised agents to log in to PTA's?
My feelings exactly which is why I am planning to leave the profession.
Ditto CarolineC...after 41 years in the profession, I am shortly retiring due to the number of changes such as this, MTD, FRS etc.....they are all unnecessary and HMRC expect us to become more and more efficient whilst they become evermore inefficient and are shielded by a veil of buck passing and inconsistencies. I feel it is a great shame that I am exiting the profession for this reason.
HMRC live in a dreamworld or so it would seem sometimes. I recommend to my clients that they activate the PTA and give them a link to do so. To date as far as I can ascertain only one has tried and he is abroad and cant get authorised. Personally I dont want to give HMRC my mobile phone number. I am sorry but the number of phone calls made to clients with demands for money not owed and the stress that goes with it is not something I wish to experience.
What will be next on the agenda of HMRC's ideas of how to create more administration and systems that don't quite work in a practice ?
More Die Manic than Dynamic.
Thanks Kate,
Great article. We are two man mainly indirect tax disputes and consultancy firm [always stay well away from PAYE]. We pay ourselves dividends and the minimum wage for NI contributions. For reasons I have been unable to ascertain since 01/04/17 we have a debt on file of £1.80 per month. Previously incurred no liability. I lost the will to live trying to find out what it was for and just paid it as penalties could have been imposed. Maybe by registering for PTA all will be revealed?!
HMRC - How to Make things Really Complicated
Tax codes are now at a point I poll to see changes and invariably laugh and ignore them.
The point on PTA's is valid though, as we can now no longer get printed SA302's from HMRC!
Hopelessly Muddled Ridiculous Cluster...
I am ignoring this whole area myself.
If a client has a tax code problem, much easier to sit on hold and have them deal with it than use the P(I)TA account.
As for employees having to sort thing like this themselves it assumes a far too large amount of knowledge on the employees behalf.
It's a very useful article, thanks.
I have had personal experience of this as a taxpayer. After a TUPE transfer, HMRC systems determined that I had two employments with each paid more than I earn. My tax code was changed to reflect that I had no personal allowance in my actual role, so I faced brutal PAYE deductions for a few months.
The 'good news' is that I was able to rectify this through my PTA. I logged in, followed the required links and advised HMRC of the change. Within three weeks my tax code had been rectified.
Is it possible for an agent to use a client's PTA merely by using the clients password etc.?
No, it is covered by 2SV utilisng a phone.
Very good article. I am a semi-retired businessman and investor. I would like to use my PTA but I cannot give HMRC my mobile number because during the summer I spend most of my time on our boat and am very often out of touch, and at other times I am often abroad in places where the roaming charges are too expensive for me to use my UK mobile number (I buy a local SIM card instead). I fear that if I give HMRC my UK mobile number they might send me a message which I might not receive for several weeks but they will regard me has having received it. I really, really want my accountant to deal with all my tax affairs and I think it is outrageous that HMRC won't let him.
"It’s surprising how many finance professionals I meet who have not activated their own PTA."
I did some time ago and guess what, the one thing I could not see was ...... any tax information at all.
I have not looked at it again.
I have 4 PAYE codes - one each for two small pensions, my SIPP and a directorship which pays me a modest salary. I wanted to receive the first two in full and pay BR on the other two, leaving, after OAP, some allowances to offset my freelance fees. Could I persuade them to do this? No chance. If I, with 52 years' tax experience, can't get HMRC to do things properly, what chance does Joe Bloggs have??
I had a case this morning where they'd changed a client's tax code to W1/M1 and reduced it slightly to 1103L. Turned out to be due to a P11D for an employer loan, but the cash equivalent after interest was zero, so I don't see why it should have affected his tax code at all, let alone triggered an emergency code.
Of course, it shouldn't be necessary to file a P11D at all if an employee has paid interest at the Official Rate, but it's so easy to get those calculations wrong (all it takes is a missing transaction or formula error) that it's better to file a nil P11D for the loan (but showing all the relevant dates and balances) to avoid the risk of a £400 penalty. If it's going to mess up their tax codes, then maybe I'll have to think again.
Reading this article, it looks like this is just one of many ways tax codes can be corrupted. It's what happens when HMRC try to run before they can walk and rush through new automated procedures. All of this should have been thoroughly tested and piloted before being unleashed on the public.
Accountants are in the eye of the storm - we have to deal with these errors but we're not allowed to access the PTA or correct them online. All we can do is phone the agents helpline and hope we get someone sensible.
"Accountants are in the eye of the storm - we have to deal with these errors but we're not allowed to access the PTA or correct them online. All we can do is phone the agents helpline and hope we get someone sensible."
Sounds good but, to be honest, I am beginning not to care what the Revenue do. I think it is possibly best to go with the flow and let them sort these problems out themselves, whilst I go down the pub.
Are we there yet? The most digitally advance tax system in the world? Looks pretty diabolical to me. This is appalling. What hope is there? I'm going to get out for sure. It's too complicated. It used to be relatively simple. Timetable for exit was extended briefly with MTD failing to get implemented thankfully as it is a load of ........
Classic HMRC.
Let's make things more complicated, more costly to admin and a nightmare for anyone having to deal with it to collect in the exact same amount of tax without all this nonsense.
'Tax agents can’t access their client’s PTA even if they have authorisation to act, so any changes the client asks their agent to pursue must be done by telephone. '
This is a recipe for disaster, how frustrating is that going to be.
Great article, thanks Kate.
Must admit feeling a little nervous at all FPS data being viewable by all client employees when we all know how wrong it can be sometimes!
This whole thing makes me shudder. I still have approx 30 years to survive in this profession.............How much more nonsense will I have to deal with between now and then?!
Clients and their employees will not have a clue about any of this. This is a recipe for disaster which accountants will have to deal with, not HMRC, nor clients because this is what they pay us for. The future is bleak....
I also have not been able to get through the security and my PTA is now locked out...... The suggestion is I should start again with a new email address etc!
Is it possible to get HMRC to remove the in year 'underpayment' that is coded out so it is settled via the TR rather than the code?
I have a client who has a large adjustment due to PA being removed but wants to pay with the TR (similar to how potential underpayments worked) but HMRC said they can not remove it.
Anyone had success in doing this?
Thanks
Hideous Muck-Ups from Right Charlies
I am just processing a 2016-17 tax return from a client who has 3 income sources:
1. A PAYE job.
2. Bank interest.
3. Carer's allowance.
Net result from the Charlies is over £2k tax bill, so £3k payment on account assuming the Charlies are continuing with the same stupid blunders in 2017-18.
Talk is cheap HMRC. I will only believe your systems are working when this sort of drivel is not landing on my desk every month or so.
Her Majesty's Right Charlies?
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