Tax codes under the spotlight

posted on July 9, 2019in the Blog Category

Tax codes under the spotlight

HMRC has launched a new dynamic coding trigger in respect of tax code accuracy. What are the key things you must now do as a result?

You may have thought HMRC had compared the tax code in use on the FPS to the tax code recorded on NI and PAYE Service (NPS), but that’s not the case.

HMRC believes up to 500,000 tax payers are on the wrong code and another 500,000 are incorrectly being defaulted to “undeclared statement C”.  They believe this is because employers are not getting starter checklists completed by new starters.

What’s changed?

If you haven’t implemented the code and it was issued more than 60 days ago the trigger rules will issue the code again.

When comparing tax codes, HMRC doesn’t look at the suffix (L, T, M etc.) or whether the code is cumulative or non-cumulative, i.e. WK1/MTH1.  If it hasn’t been used, it recalculates and sees if the HMRC held code is still appropriate. If not, HMRC will issue a new code to the employee and employer.

What you need to do.

Starter checklists need to be completed so the appropriate default code is being used and ensure any tax codes are downloaded before the payroll run is actioned, with any rejections output as an error that you can investigate.

Advice 1 – It’s vital new starter checklists are completed by the employee however senior they are and regardless of whether they present a P45, as it’s a failure to operate PAYE if you default to OT/1.

Advice 2 – Where HMRC finds that you haven’t been operating the correct code, it can issue a regulation 80 determination that transfers the tax liability to you as the employer.

What’s a regulation 80?

They must be issued within 4 years of the end of the tax year when the incorrect tax deduction was made (however as with all careless errors, which HMRC will say these are, it can go back six years). If HMRC says that you didn’t operate the tax code so are on the hook for the underpaid tax, that’s not the end.  Ask when HMRC issued the code and check if you have evidence it wasn’t sent to you online on the date concerned.

Sue Cusick, Payroll Manager 

AvatarWritten By: Mandi Mottershead

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