Tax Code Error
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Discussion

Sim75

Original Poster:

992 posts

169 months

Friday 15th June 2018
quotequote all
It seems i'm the victim of a feck up.

My tax code for the years 2017/18 reflected a personal allowance of £11,500

I'm some way into the 6 figure salary bracket, so this meant my personal allowance (tax code) should have been way lower - nearer to £4k.

Tax codes are something I know very little about. Until now i never really knew what they meant.

I'm a director in the buisness and have always just paid my tax (as PAYE) in good faith.

How could an error like this occur? the HMRC had all the info they needed to calculate what the code should have been.
Right now my pay has zero complexities to it (pension / car etc), so there are no contributing factors to the error.

Tax is circa £3k short for the year. My finance director is pointing the finger of blame at the HMRC saying his dept has no influence over the codes.

Do i have a leg to stand on?

67Dino

3,644 posts

135 months

Friday 15th June 2018
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In short, no. It isn’t the company's responsibility to get your tax code right, it is actually yours, despite (as you say) no one ever telling you this. Since the company cannot know about your personal tax affairs, all they do is apply the tax code they are given.

Unfortunately the HMRC does get it wrong from time to time. However, they are open to spreading repayments due when it happens. I’d ask for the £3k to be taken in monthly instalments, and think of it as a 0% loan...

trickywoo

14,182 posts

260 months

Saturday 16th June 2018
quotequote all
Were you over £100k for previous years too?

If not HMRC will not have known you’d go over based on your last self assessment.

Although you say you pay PAYE this will be based on your last self assessment and not necessarily updated in the same way that pure (no self assessment returns) PAYE employees are.

My guess, apart from a simple HMRC error, is that there is a lag in collection based on your income changing from one self assessment to the next.

Sim75

Original Poster:

992 posts

169 months

Saturday 16th June 2018
quotequote all
trickywoo said:
Were you over £100k for previous years too?

If not HMRC will not have known you’d go over based on your last self assessment.

Although you say you pay PAYE this will be based on your last self assessment and not necessarily updated in the same way that pure (no self assessment returns) PAYE employees are.

My guess, apart from a simple HMRC error, is that there is a lag in collection based on your income changing from one self assessment to the next.
Correct. It was just below and then went some way over.
Should my finance department have informed them or should HMRC have not seen this?

Sheepshanks

41,068 posts

149 months

Saturday 16th June 2018
quotequote all
67Dino said:
....and think of it as a 0% loan...
Exactly.

OK, there might be some people who would struggle to pay an unexpected (even though it should have been obvious) £3K bill but surely it’s not a problem for someone who is “well into 6 figures?”

PurpleMoonlight

22,362 posts

187 months

Saturday 16th June 2018
quotequote all
Sim75 said:
Correct. It was just below and then went some way over.
Should my finance department have informed them or should HMRC have not seen this?
Directors salary can and often do fluctuate throughout the tax year, so HMRC tent not to make mid year adjustments to the tax code unless collecting tax owed from the previous tax year or asked to by the tax payer.

Ultimately it is your responsibility to understand the tax you are required to pay so stop trying to blame everyone else.

mikeiow

8,167 posts

160 months

Saturday 16th June 2018
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Sim75 said:
It seems i'm the victim of a feck up.
More like the lucky recipient of an interest-free loan, if you sort out that repayment schedule well!
Indeed, surely they will modify your tax code to collect payments through the year and you automatically benefit from the loan, repaying it through the year ahead?

Or did you think the money was a bonus from HMRC?!!

robinessex

12,012 posts

211 months

Saturday 16th June 2018
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I've found in the past a phone call to HMRC soon sorts out issues like this. I also keep a simple Excel spread sheet to calculate my wifes tax, found a few errors in the past from her companies accounts department.

Gary C

15,267 posts

209 months

Saturday 16th June 2018
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Once you go over £100k you should loose £1 for ever £2 of allowance (as I recall) and it's not automatic and you have to suffer the first time you go over when doing your tax return. It was a pain when just flirting every other year with the threshold, but once actually over it, it becomes automatic.

On another point, you may also need to look at your pension input allowance as you can only put £40k in a year now (with some allowance from unused previous years) and this £40k allowance reduces above £110k

It's a horrible breakpoint as tax owing can fluctuate. I had several years of negative tax codes.

And that reminds me, I need to do my return, hope mercer's have worked out the pension I put amount by now.

Edited by Gary C on Saturday 16th June 10:04

Sim75

Original Poster:

992 posts

169 months

Sunday 17th June 2018
quotequote all
What happens if the HMRC forwarded a code to my payroll that wasn’t implemented? Is that a likely scenario?

I only ask as the current tax code on my HMRC portal is different to the one on my current payslips.

Ian350

316 posts

208 months

Monday 18th June 2018
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Sim75 said:
What happens if the HMRC forwarded a code to my payroll that wasn’t implemented? Is that a likely scenario?

I only ask as the current tax code on my HMRC portal is different to the one on my current payslips.
Yes that could happen if they simply binned the new code note but HMRC would have sent a copy of the new tax code to you personally too. Did you receive anything?

I think its fair to say that even if your Finance Dept rang up HMRC and suggested that your tax code was wrong HMRC would simply tell them to go away as they do not have the authority to deal with your tax affairs.

Sim75

Original Poster:

992 posts

169 months

Monday 18th June 2018
quotequote all
Ian350 said:
Yes that could happen if they simply binned the new code note but HMRC would have sent a copy of the new tax code to you personally too. Did you receive anything?

I think its fair to say that even if your Finance Dept rang up HMRC and suggested that your tax code was wrong HMRC would simply tell them to go away as they do not have the authority to deal with your tax affairs.
It's such a grey area. There are many cases online where employers have had to accept responsibilty arising from a lack of due care and attention with PAYE. I'm happy to suck this up if i have to (well not exactly happy to, but will do), I just want to understand how such an error could have happened. In 25+ years i've never had a discepency of more than a few hundred - and in the past i've earned more. Not once have i ever had to call HMRC either. No pension, no company car or other benefits. I had no idea how to understand tax codes, and is it reasonable for me to have to intterogate them anyway - isn't the job of the HMRC to make sure they're accurate based on the information provided?

anonymous-user

84 months

Monday 18th June 2018
quotequote all
Sim75 said:
Ian350 said:
Yes that could happen if they simply binned the new code note but HMRC would have sent a copy of the new tax code to you personally too. Did you receive anything?

I think its fair to say that even if your Finance Dept rang up HMRC and suggested that your tax code was wrong HMRC would simply tell them to go away as they do not have the authority to deal with your tax affairs.
It's such a grey area. There are many cases online where employers have had to accept responsibilty arising from a lack of due care and attention with PAYE. I'm happy to suck this up if i have to (well not exactly happy to, but will do), I just want to understand how such an error could have happened. In 25+ years i've never had a discepency of more than a few hundred - and in the past i've earned more. Not once have i ever had to call HMRC either. No pension, no company car or other benefits. I had no idea how to understand tax codes, and is it reasonable for me to have to intterogate them anyway - isn't the job of the HMRC to make sure they're accurate based on the information provided?
Surely the basic point is that you correctly had a tax liability £3k higher than the amount you have paid? Any errors (if there are any - it isn’t clear) by your employer or HMRC haven’t created an ADDITIONAL liability - so you’re not sucking anything up. As others have pointed out, you’ve had an interest free loan - so it’s a bit bonkers to expect to be let off repaying it simply on the basis of a possible admin error.

otherman

2,266 posts

195 months

Monday 18th June 2018
quotequote all
Just ring HMRC and they'll sort it.

The Ferret

1,290 posts

190 months

Tuesday 19th June 2018
quotequote all
Gary C said:
Once you go over £100k you should loose £1 for ever £2 of allowance (as I recall) and it's not automatic and you have to suffer the first time you go over when doing your tax return. It was a pain when just flirting every other year with the threshold, but once actually over it, it becomes automatic.

On another point, you may also need to look at your pension input allowance as you can only put £40k in a year now (with some allowance from unused previous years) and this £40k allowance reduces above £110k

It's a horrible breakpoint as tax owing can fluctuate. I had several years of negative tax codes.

And that reminds me, I need to do my return, hope mercer's have worked out the pension I put amount by now.

Edited by Gary C on Saturday 16th June 10:04
^this^

You've been stung my the stealth tax HMRC impose on earnings between £100,000 and £123,000

Any earnings between those figures attract tax at 60% instead of 40% (they call it a personal allowance reduction, a nice way of saying tax at 60%)

What's worse, PAYE payroll systems can't account for it - so your FD is right in the respect that it's not his error (although depending on his knowledge it's arguable he should have made you aware of it, I know I do with anyone who's earning look like they will reach that level). The payroll system will tax the earnings at 40%, leaving a further 20% to be paid once HMRC have your final pay and P11D (if applicable) for the year

With a £3k shortfall in tax I'm guessing you're earnings were somewhere in the region of £115,000 (including any benefits such as company car and private medical).

It's a huge scam, and the only real way around it is to reduce your earnings below £100,000 using pension contributions. The other option is to manage your earnings over a couple of years so that you only get caught every other year. e.g. if you earn £115,000 a year try to pay yourself £100,000 one tax year then £130,000 the following tax year. It adds up to the same over the 2 years but you only get the charge once.




Sim75

Original Poster:

992 posts

169 months

Tuesday 19th June 2018
quotequote all
The Ferret said:
You've been stung my the stealth tax HMRC impose on earnings between £100,000 and £123,000

Any earnings between those figures attract tax at 60% instead of 40% (they call it a personal allowance reduction, a nice way of saying tax at 60%)

What's worse, PAYE payroll systems can't account for it - so your FD is right in the respect that it's not his error (although depending on his knowledge it's arguable he should have made you aware of it, I know I do with anyone who's earning look like they will reach that level). The payroll system will tax the earnings at 40%, leaving a further 20% to be paid once HMRC have your final pay and P11D (if applicable) for the year

With a £3k shortfall in tax I'm guessing you're earnings were somewhere in the region of £115,000 (including any benefits such as company car and private medical).

It's a huge scam, and the only real way around it is to reduce your earnings below £100,000 using pension contributions. The other option is to manage your earnings over a couple of years so that you only get caught every other year. e.g. if you earn £115,000 a year try to pay yourself £100,000 one tax year then £130,000 the following tax year. It adds up to the same over the 2 years but you only get the charge once.
Spot on sir. Thank you very much.



Sim75

Original Poster:

992 posts

169 months

Friday 22nd June 2018
quotequote all
Quick question to the wisdom on here.

Does 100% of dividend income count against your personal allowance?

Because the topline fact that the first £5,000 is tax free is largly irrelivent if your PA is being erroded as a result.

My £8,500 dividend is currently showing a tax liabilty of £2,700, due to the allowance it's eating up.

Is that right...?

PurpleMoonlight

22,362 posts

187 months

Friday 22nd June 2018
quotequote all
In the taxation pecking order Dividends come after earned income and cash savings interest.

So if your earned income and interest use up all your personal allowance then only the dividend allowance will apply to dividends. It's £2000 for 2017-18 by the way.

Croutons

13,369 posts

196 months

Friday 22nd June 2018
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I love the way someone earning £115,000 feels like a "victim".

fking love Ph hehe

Butter Face

34,878 posts

190 months

Friday 22nd June 2018
quotequote all
Croutons said:
I love the way someone earning £115,000 feels like a "victim".

fking love Ph hehe
Just amazing ain’t it? hehe