Beware tax code errors

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John Endacott

HM Revenue & Customs (HMRC) have confirmed that a considerable number of incorrect tax codes have recently been issued to employees and pensioners.

If your tax code is incorrect, then you will pay the wrong amount of tax each month.  If it is too little, then you will end up with a tax demand at the end of the year.  If it is too much, then your cash flow can be impacted upon.

Incorrect tax codes are nothing new, but it seems that the problem is particularly bad this year because of the recession and the increases in income tax from 6 April this year.

The reason why the recession is relevant is because Pay As You Earn (PAYE) does not cope well with multiple sources of income – so those that have two part time jobs or are working but also have a small pension, could be disadvantaged.

Also, low interest rates mean that coding adjustments for investment income will probably be wrong.  The new tax changes are causing problems because the method of calculation is too complex for the PAYE system.

“The problem is most acute for those who are not within self-assessment and so do not file a tax return each year,” according to John Endacott, a Tax Partner at chartered accountants Winter Rule in Truro.

“I would advise pensioners in particular to look at how their tax codes on private pensions are calculated. We have seen cases where substantial amounts of tax have been overpaid over many years, in the thousands, because of incorrect coding adjustments and this is for individuals with average incomes.  If in doubt, then take advice.”

2 COMMENTS

  1. Addtional…

    This morning I received through the letterbox a letter dated 7th January 2010 (over a month ago… how???) informing me that my Job Seekers Allowance will be taxed at the Basic Rate. 2 points:

    1: I signed off JSA on 20th May 2009

    2: Why would I be paying tax on JSA anyway?

    If anyone from Winter Rule wants to make an example of the ridiculousness of this system and help me to sort this out at the same time, please don’t hesitate to contact me! I’ve written a letter of complaint to HMRC about this which I am awaiting a reply for, and will go via Adjudication to an Ombudsman if I need to.

  2. Not to mention the amateurish & quite frankly embarrassing way that PAYE is administered by HMRC & many employers, especially those in the public sector. There seems to be too many ways they can get it wrong and end up costing innocent employees good money.

    I have an issue caused by incorrect or poorly executed administration of my tax codes by Cornwall Council, Job Centre Plus and HMRC. No matter how much I’ve tried to chase it up & resolve it before the end of this tax year the responses from all 3 have been disappointing & passing the buck has become the byword for the way these public bodies seem to do business.

    The whole system needs simplifying and turned in the favour of us, the hard working taxpayer, and not the bureaucrats & pencil pushers who clog this country’s entire system up. I have no worries about paying tax but when I have acted honestly, in good faith and as far I am aware correctly and still get nowhere it is galling to say the least.

    Rant over….

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