In light of recent problems with tax code notices and their new computer system HMRC have issued the following message:
Dear Customers and Stakeholders
Recently we have talked with a number of trusted partners individually and collectively at the Taxpayer Data Standards Forum, the NPS Forum and Employer Consultation Forum about current problems with this year’s annual coding. We understand you need to know and share the latest information as near as possible in real time. And we understand why; because, like us, you need to run your businesses efficiently, and that is everything from demand management through to managing relationships and communicating effectively with your employees, clients and pensioners.
So, we are going to trial a weekly informal update to see if it meets your needs. If you think we can add more value you can suggest changes or potential new recipients. And if the whole exercise turns out to be not particularly effective then we will drop it all together. As well as giving you a quick update and forward look, we want to show you that effective communication between us about meeting your needs is at the heart of how we do things.
So where are we with annual coding?
We identified in January that, as a result of data problems, a number of incorrect PAYE tax codes (P2s) were being issued;
- We took action quickly to identify the types of codes that were affected by these problems and have held these back for review before we issue any notices of changed codes (P9s) to employers and pension providers, including P9s that might have echoed incorrect codes already sent to employees or pensioners in January and February;
- As a result of this, however, the normal issue of codes for the new tax year has been delayed, and some will not be issued in time for implementation in April while we complete our review. We apologise to customers and their employers or pension providers for this;
- If a P9 has not been received in time to operate at start of the new tax year, the employer or pension provider should continue to operate the existing code. Please do not be tempted to apply any other code until a fresh one has been received from HMRC. In some cases, the correct outcome of our review will be that no P2 or P9 is due, in which case the existing code rolls over - this is a normal part of the PAYE system;
- In most cases there will be little tax effect if the same code is operated in April as in March, as personal allowances for 2010/11 have been maintained at 2009/10 levels;
- There are, however, a number of cases where using the existing code will result in an underpayment of tax each month until the correct code is applied and, where possible, we have prioritised our reviews to minimise any tax effect for the most vulnerable;
- Those customers in receipt of the basic state pension, Employment Support Allowance or long term Incapacity Benefit are due a small uplift in these benefits in 2010/11. This increases the tax due each month by between £1.25 and £6 a month depending on whether they are basic or higher rate taxpayers and whether they have a dependent spouse under 60. Underpayments will be collected either at the next payday or in the next tax year once the revised code is in place;
- Customers in receipt of a company car, car fuel or van fuel will also underpay tax until a revised code is in operation, as the tax on these benefits increases in 2010/11. The size of underpayment depends on the type of vehicle but could range from around £2 a month for van drivers to £25 a month for drivers of company cars also in receipt of fuel benefit;
- Overpayments are not expected to arise other than certain limited cases where there has been a change in circumstances in the year, such as the giving up of a company car, which has not yet been reflected in our records. Any repayments due will be made as soon as the revised code is issued;
- Following our reviews, we have already sent out the first batch of P9s through EDI, BI and paper channels and expect to send the next batch over the next couple of weeks.
- A number of automated scans are being carried out over the next few days so at this stage we do not know how many P9s are likely to be generated in the next couple of weeks and how many cases will remain unreviewed at the start of the tax year. We are making every effort to ensure employers and pension providers are able to operate the right codes as early as possible in the new tax year and are aiming to complete our review in April;
- As soon as we have an accurate view of the numbers that will need to be cleared beyond the end of the tax year we will let you know.
- We will keep you informed.
It should be noted that employers must not be tempted to amend employee tax codes on the strength of a P2 (employee notice of new tax code) given to them by their employee, but should wait until they have received the P9 (employer notice of new tax code), as this may have been held back for review before being issued, and could differ from the original P2 issued.
and if it goes out as an email to members we should add:
HMRC intend to send this update weekly until they decide it is no longer necessary.