Tax Code Error
Discussion
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?
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?
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...
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...
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.
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.
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.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.
Should my finance department have informed them or should HMRC have not seen this?
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.Should my finance department have informed them or should HMRC have not seen this?
Ultimately it is your responsibility to understand the tax you are required to pay so stop trying to blame everyone else.
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?!!
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.
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 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 only ask as the current tax code on my HMRC portal is different to the one on my current payslips.
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.
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?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 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?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.
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.
^this^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
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.
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.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.
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...?
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...?
king love Ph 
Gassing Station | Finance | Top of Page | What's New | My Stuff