Tribunal turns down PAYE coding out appeal

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Robert Lovell
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A first tier tax tribunal has upheld the decision to issue a penalty after taxpayer Derek Ross failed to pay his PAYE on time.

In the case of Ross v Revenue & Customs the taxpayer had filed his tax return, owing £807.40, and elected for HMRC to collect it through payroll by adjusting his PAYE code.

Ross thought he had done his work for another year and forgot about it until a £40 penalty notice arrived.

Ross’ accountants, McLay, McAlister and McGibbon LLP, lodged an appeal on the 21 June 2013. Ross did not consider that there was any good reason that the tax could not have been collected through the tax code and he assumed that this would be done.

HMRC sent a letter on 23 July 2013 rejecting his appeal, saying there was insufficient PAYE liability to enable the additional SA tax to be collected through the tax code. 

On 15 August 2013 Ross requested a review of...

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14th Apr 2014 10:58

HMRC refusal to code out PAYE underpayments

This tribunal decision, and more importantly, HMRC's refusal to out-code the underpayment makes a mockery of their stated policy of out-coding underpayments of less than £3,000. What is the point of having an advertised policy, stated in the notes to tax returns,if HMRC are unwilling to apply the policy? Is the Government really so hard up they can't now afford to apply a well publicised policy? Apparently the answer is yes!

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By jholmes
14th Apr 2014 11:01

The tax man cometh (like a ninja)

This appears to be yet another case of HMRC applying the law, but not showing any common sense or decency.

(I am going to quickly make clear that i am not aware of all the facts and have only read the above article, however....)

HMRC seem to have taken the view that they will only send reminders once a penalty has been incurred, even though, in this case, it appears that the individual had tried to sort it out before the 31 Jan deadline via his tax code.

This seems to be yet another tactic in the stealth approach used by HMRC to bump up its revenue via fines.

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The whole point here is encapsulated in the penultimate paragraph which points out that by the long standing rules of PAYE a code adjustment cannot take more than 50% tax. The fault is with the tax office concerned not advising the taxpayer of this fact. Once again the general  methodology and attitude of HMRC is not fit for purpose.


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14th Apr 2014 11:33

Worst of all...

...let's not forget that this is the body which whines constantly about 'fairness' and 'morality'.  Those who use loopholes to do something legal are nonetheless morally repugnant, because they are using the law in creative ways which were not the situations parliament intended.  Fair enough, but look at what happens when the boot is on the other foot!  Practice what you preach!!

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14th Apr 2014 11:41

No common sense

All that was needed was for a human being to be involved in the process.

A quick check would have told this human that the client would not have sufficient PAYE liability in the current year to cover the shortfall.  Issue a letter stating this, and asking that the client pay the underpayment off in instalments over the next twelve months.  Job done.

Instead, we get penalties, and a waste of enormous amounts of time and expense dealing with a penalty appeal for a penalty that should never have been charged.

Tax doesn't have to be taxing, it just needs to have some common sense applied.

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By Moo
14th Apr 2014 11:41

coding out

It appears that in this case HMRC may have correctly applied their own parameters but in my experience when refusing to code out an underpayment they generally write to the taxpayer or agent or both to explain, it would be interesting to know if that happened in this case.

More concerning in my opinion are the recent cases that I have encountered where HMRC have failed to recognise which is the main PAYE income source when the taxpayer has several sources.  This has resulted in them either failing to code out underpayments where the main source was more than adequate because their system did not recognise it was the main source or in another example trying to impose a ludicrously high K code against the taxpayer's smallest PAYE source a £700 pension when he had a salary of over £100k.

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14th Apr 2014 12:04

Harsh as it is

HMRC are correct. If you read SA150, page TRG25 it says "Providing we receive your paper tax return by 31 October, or 30 December if you file online, if you owe tax of less than £3,000, we will try and collect it through your 2015–16 PAYE tax code, if you have one. However be aware that we can’t always collect the amount through your code for a number of reasons. So check your PAYE code for next year to make sure it has definitely been coded out."

Ignorance is no excuse and Mr Ross chose to have Accountants acting on his behalf, who should have been aware of this little caveat and made Mr Ross aware that he needed to check is PAYE coding notice. 

I understand Mr Ross' position. However, the rules need to be enforced without discriminating. I know I will not make myself popular with that last comment and I am a mother so, I must also add 'Two wrongs never make a right', something HMRC needs to keep in mind as well. 

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By Locutus
14th Apr 2014 12:11

Why can't HMRC ...

Just send a letter to the taxpayer, if they (for whatever reason) choose not to code out the tax.

Then it will avoid the misunderstandings encountered here.

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14th Apr 2014 12:34

coding out liabilities
I have several cases where they have tried the same thing. In all cases after strong representation from me and where the taxpayer has agreed the codes have been amended.

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14th Apr 2014 12:48

Time machine ?

So it is December, you file your tax return, despite fitting all the criteria, the HMRC know in advance that your PAYE income from the following April onwards will be insufficient to collect the deficit via a K code and so quietly reject the coding out request. You discover this when you get your coding notice in say February - you then go back in time and pay the tax before the 31st January to avoid a penalty.

That said perhaps they should have just paid on March 3rd when the HMRC chased them.


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14th Apr 2014 13:26

And yet quick to change codes..

They seem pretty quick to change tax codes the rest of the time... assuming that tax payers expenses will be exactly the same year on year.

It just causes more confusion for all concerned and yes, uses a huge amount of time and resources to fix it. Ridiculous!

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14th Apr 2014 13:48


Sorry, clearly I was failing to communicate. I was saying it seemed unfair. The taxpayer would not know he had to pay the tax on 31st Jan until he received the coding notice in Feb. Hence my comment about time machines and going back in time.

I was also pointing out the HMRC would need a time machine to travel forward in time to know for sure that his earnings the following year would be insufficient to collect the shortfall via a K code.


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