Tax coding errors
Discussion
For what seems like the nth year in a row my wife has an extra tax payment to make in January.
It seems that every year, her tax code is wrong and she always owes them money!
Is this a balls up by HMRC or her payroll bods not giving HMRC the correct info?
(she's PAYE, but has bonus, car allowance, health, pension etc)
Thanks.
It seems that every year, her tax code is wrong and she always owes them money!
Is this a balls up by HMRC or her payroll bods not giving HMRC the correct info?
(she's PAYE, but has bonus, car allowance, health, pension etc)
Thanks.
Edited by Zyp on Tuesday 11th December 17:47
The BIKs you mention can often change from year to year and ones tax code is based on historical estimates of these, which are only corrected from the P11D.
Changes in personal allowance and any pay increases can also make things different by altering tax brackets.
I assume that she is completing a self assessment each year, which is why she settles up in January rather than any underpayment being recovered under PAYE in the next year? In that case it will, as you have found, very often not reconcile accurately.
Just another benefit of our arcane and nonsensical tax regime.
Changes in personal allowance and any pay increases can also make things different by altering tax brackets.
I assume that she is completing a self assessment each year, which is why she settles up in January rather than any underpayment being recovered under PAYE in the next year? In that case it will, as you have found, very often not reconcile accurately.
Just another benefit of our arcane and nonsensical tax regime.
Thanks for the replies so far.
Yes, she has to fill in a self assessment every year.
The extra payments are usually just under £2500, yes.
I'm guessing caused by her bonus, which varies in percentage terms each year, and possibly by her being able to 'buy' holiday entitlement?
It's bloody annoying when you're PAYE.
Is it possible to have the under payment collected in her monthly pay in the next tax year?
Yes, she has to fill in a self assessment every year.
The extra payments are usually just under £2500, yes.
I'm guessing caused by her bonus, which varies in percentage terms each year, and possibly by her being able to 'buy' holiday entitlement?
It's bloody annoying when you're PAYE.
Is it possible to have the under payment collected in her monthly pay in the next tax year?
Zyp said:
Thanks for the replies so far.
Yes, she has to fill in a self assessment every year.
The extra payments are usually just under £2500, yes.
I'm guessing caused by her bonus, which varies in percentage terms each year, and possibly by her being able to 'buy' holiday entitlement?
It's bloody annoying when you're PAYE.
Is it possible to have the under payment collected in her monthly pay in the next tax year?
Yes, they can adjust your code to collect an underpayment.Yes, she has to fill in a self assessment every year.
The extra payments are usually just under £2500, yes.
I'm guessing caused by her bonus, which varies in percentage terms each year, and possibly by her being able to 'buy' holiday entitlement?
It's bloody annoying when you're PAYE.
Is it possible to have the under payment collected in her monthly pay in the next tax year?
I have constant issues with my tax code and have done for years, last year it was continuously changed with no explanation, eventually discovered that I was logged as having two jobs with the same title, same employer and same salary, ridiculous, I have no idea why this happened. I am currently paying back an underpayment accrued from all the issues I had with mine for 2011/12 and my tax code has been adjusted to reflect this, so it is possible, and probably easier.
Zyp said:
The extra payments are usually just under £2500, yes.
I'm guessing caused by her bonus, which varies in percentage terms each year, and possibly by her being able to 'buy' holiday entitlement?
It's bloody annoying when you're PAYE.
That's a bit odd, because if your income hovers around the point at which tax rates change, then bonus payments usually result in you paying too much tax as that month's income is very high so is all taxed at the higher rate.I'm guessing caused by her bonus, which varies in percentage terms each year, and possibly by her being able to 'buy' holiday entitlement?
It's bloody annoying when you're PAYE.
I don't understand how buying holiday entitlement works, but can't imagine that's very significant? If anything I would have thought it would reduce gross pay, if done by salary sacrifice.
I guess if the bonus is taking her over £100K then it gets messy with allowance restrictions but then I wouldn't have thought you'd be complaining about £2500 is she's grossing over £100K.
Mine's usually a bit out due to dividend payments, but I got my statement today - underpaid by £11, due to increased cost of medical cover.
I think you're right about the allowance restrictions having a bearing on the issue.
It's not the amount owed that's the problem here (although it'd be nice to not to have to pay it!) but the fact that it happens every year.
It sometimes seems like an unfortunate position to be in when ones done well for oneself!
I'm self employed and find it a much easier system.
It's not the amount owed that's the problem here (although it'd be nice to not to have to pay it!) but the fact that it happens every year.
It sometimes seems like an unfortunate position to be in when ones done well for oneself!
I'm self employed and find it a much easier system.
It is much better for people on PAYE and who fill in Self Assessment forms to get them submitted as early as possible - pereferably before the end of July. That allows HMRC some time to sort out and correct codings.
By the time you get to November, HMRC are already on the verge of issuing the tax codes for the next tax year. These codes are usually sent out in January.
So, just to show how the time line works -
Tax Year 2011/12 ends on 5 April 2012.
On 6 April 2012, HMRC sends out to taxpayer the notice to complete a 2011/12 tax return.
19 May 2012 - Employer notifies HMRC of Gross Salary and PAYE deducted from employee for 2011/12.
6 July 2012 - employer submits P11D for 2011/12 showing Benefit in Kind and Expense Claims for employee.
November/December 2012 - HMRC starts working out what they THINK the correct 2013/14 tax code for the employee should be. This is provisionally based on the 2011/12 P35 and P11D information submitted by the employer earlier in the year. They issue the code in January 2013.
Anytime from 6 April 2012 to 31 January 2013 - employee submits their 2011/12 Self Assessment tax return.
You can see how all these activities kind of fit together. The "rogue" element is the timing of the submission of the 2011/12 Self Assessment tax return by the taxpayer as the window to submit it is so long i.e. 10 Months.
If the employee gets their tax return in early, it gives HMRC the chance to correct PAYE codings in the CURRENT (i.e. 2012/13) tax year.
If the return goes in (say) after 31 October, it may be too late to correct the 2012/13 tax coding. So, the correct information for 2011/12 (as revealed in the 2011/12 Self Assessment tax return) ends up affecting the 2013/14 PAYE tax coding.
By the time you get to November, HMRC are already on the verge of issuing the tax codes for the next tax year. These codes are usually sent out in January.
So, just to show how the time line works -
Tax Year 2011/12 ends on 5 April 2012.
On 6 April 2012, HMRC sends out to taxpayer the notice to complete a 2011/12 tax return.
19 May 2012 - Employer notifies HMRC of Gross Salary and PAYE deducted from employee for 2011/12.
6 July 2012 - employer submits P11D for 2011/12 showing Benefit in Kind and Expense Claims for employee.
November/December 2012 - HMRC starts working out what they THINK the correct 2013/14 tax code for the employee should be. This is provisionally based on the 2011/12 P35 and P11D information submitted by the employer earlier in the year. They issue the code in January 2013.
Anytime from 6 April 2012 to 31 January 2013 - employee submits their 2011/12 Self Assessment tax return.
You can see how all these activities kind of fit together. The "rogue" element is the timing of the submission of the 2011/12 Self Assessment tax return by the taxpayer as the window to submit it is so long i.e. 10 Months.
If the employee gets their tax return in early, it gives HMRC the chance to correct PAYE codings in the CURRENT (i.e. 2012/13) tax year.
If the return goes in (say) after 31 October, it may be too late to correct the 2012/13 tax coding. So, the correct information for 2011/12 (as revealed in the 2011/12 Self Assessment tax return) ends up affecting the 2013/14 PAYE tax coding.
Edited by Eric Mc on Thursday 13th December 10:17
10/10, Eric.
Although I'm retired, I am still required to do self assessment. I also seem to get about 5-6 tax code change notifications during each tax year.
I used to do self assessment round about December but since I started to do it before the end of July, there's always time to get the current year's tax code amended to include my inevitable post self assessment residual tax liability. So, the amount of tax still owed is collected via PAYE from my pension, rather than have a bill to pay later, say in February.
R.
Although I'm retired, I am still required to do self assessment. I also seem to get about 5-6 tax code change notifications during each tax year.
I used to do self assessment round about December but since I started to do it before the end of July, there's always time to get the current year's tax code amended to include my inevitable post self assessment residual tax liability. So, the amount of tax still owed is collected via PAYE from my pension, rather than have a bill to pay later, say in February.
R.
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