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The mystery of the missing ‘S’ codes

15th Mar 2016
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Kate Upcraft wonders why Scottish PAYE ‘S’ codes are as rare as hen’s teeth. Is it bad data or faulty systems?

I’ve been in Edinburgh and Glasgow lecturing over the last three weeks, and I expected the talk to be all about Scottish PAYE tax codes, given that 2.2m people were allegedly told by HMRC in early December 2015 that they were Scottish taxpayers.

Alarm bells began to ring when I heard from the assembled accountants and payroll managers that they not seen any Scottish tax codes arrive for any client payrolls, and they hadn’t received personal letters about their own Scottish taxpayer status.

Even more curious were the households where the husband had a received an HMRC letter confirming his Scottish status but the wife had not – bearing in mind the Scottish taxpayer status is based on the location of the taxpayer’s main home.

I was less concerned about the absence of codes in mid-February 2016, as I knew that this year’s annual coding run was very late. There has been no explanation for this, but the coding run didn’t happen until 2 - 4 March 2016 rather than in February as normal.

It was when the PAYE codes did start to arrive that concern mounted. Reports began to circulate of S prefixes missing for those who had received ‘Scottish letters’ from HMRC. Where an S code was provided the layout of the PAYE coding notice (P9) when downloaded was confusing, as the S is shown on a separate line.

The ‘S’ is supposed to be input into payroll systems as a prefix in the first position ie: S1100L or SK100. One would hope that payroll systems would not allow it to be entered as a suffix ie: 1100LS, even if the layout of the P9 notice is confusing.

HMRC was informed that all did not seem well with both the Scottish tax code assessment (the letters) and the PAYE code distribution, but nothing was heard in response. Then on 10 March 2016 the following message was sent to software developers, and a slightly truncated version was posted on the PAYE service issues page:

Annual coding run (P9 – Tax regime issue)

HMRC are aware of an issue which is under urgent investigation whereby those customers expecting to receive a new Scottish Tax Code for employees, have not been seeing this information when downloading notices into their third party software (internet channel only). As soon as we have the fix and recovery solution confirmed we will of course update you.

This message needs unpicking a little:

1. It implies the PAYE coding issues lie with third party software, not within HMRC’s systems. Yet the lack of Scottish letters as opposed to the ‘S’ prefix on P9s could not be the fault of third party software, as only HMRC have conducted the taxpayer status (Scottish or not) assessment.

2. It doesn’t appear to be a problem for the EDI channel, although the caveat that it is only an internet channel issue is missing on the PAYE service issues version as compared to the software developer’s support team explanation.

3. If the problem is down to third party software why does HMRC need to investigate and propose a solution? Wouldn’t they simply say that the software was interpreting the file incorrectly and the software providers needed to provide the solution?

4. What HMRC solution could there be, other than to re-send the file? Such a resubmission could mean:

  • overwriting correct codes with a replacement that is the same;
  • whilst at the same time applying correct codes for some taxpayers; and
  • ensuring that the files are applied in the right order. 

Incidentally, the standard of PAYE codes for 2016/17 generally appears to be poor, with both BR codes that are inappropriate and month 1 codes (it’s April?). All this confusion about the ‘S’ codes has appeared in the last three weeks of the tax year when payroll teams are very busy with the tax year end.

The inability to identify Scottish taxpayers doesn’t make a difference to the tax payable by taxpayers in 2016/17, as the total of the UK income tax rates plus the SRIT is the same as applies in the rest of the UK. But it will be a problem for the Scottish Government if this isn’t sorted by the end of the tax year, as the right amount of income tax will not be sent to the Scottish Government.

My worry is that this ‘S’ code mess is yet another example of corrupted data, and an indication that HMRC’s core PAYE systems are unstable.

Replies (2)

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By TaxTeddy
15th Mar 2016 14:03

Could the delay...

..... be due to HMRC and Revenue Scotland arguing over whose responsibility it is?

Surely not.

Thanks (0)
By neiltonks
16th Mar 2016 09:01


It was an HMRC problem (nothing to do with the payroll software) and has now been resolved. The only downside is that it's required HMRC to reissue all the P9s for employers who have Scottish taxpayers in their workforce.

Basically the Tax Regime indicators were held correctly within the HMRC system for Scottish taxpayers, hence they could be seen online, but the translation into XML format prior to download into payroll software was dropping these indicators. This had the effect of making all the codes be treated as "rest of UK".

So, apart from the nuisance value of having to download the P9s again, all should be well now, at least as far as this particular cause of missing "S" codes is concerned. However, the situation where a few individuals aren't "Scottish" when they expected to be won't be resolved by this.

Thanks (1)