Many of you will have seen/ heard the recent media coverage regarding the PAYE error. Good old HM Revenue and Customs!
You may get a Tax Calculation (form P800) from HM Revenue and Customs (HMRC) telling you that you’ve paid too much or too little tax for the tax years 2008-09 and 2009-10. The calculation shows your total income and the allowances that are due to you for each of these years.
Not everyone will get a calculation, only those who have paid too much or too little tax – so don’t worry if you don’t get one.
If you do get a Tax Calculation, you should check the calculation carefully to make sure you agree with all the information given. You should also make sure you read the notes that come with it as these will help you understand what it means. You can read the notes online by going to www.hmrc.gov.uk/P800 .
So what’s happened?
Typically, the most affected people are those that have started a new job, had two jobs or received company benefits.
Those that have completed tax returns should not be affected as the error will have been picked up on completion of this.
HMRC are trying to recover £2bn that was underpaid in the last two tax years, and also to repay £1.8bn that was overpaid. The remainder of the tax calculations will be sent out by Christmas. The errors were revealed when a new computer system was introduced.
Repayments to 4.3 million people will be worth on average £420 each and will be made via changes to tax codes for the next tax year, 2011-12. Extra tax charges will average £1,380 and the majority of these will also be recovered via changes to next year’s tax codes.
Where the tax charge is more than £2k the taxpayer will, in theory, be asked to pay a lump sum; however, an HMRC spokesman stated those could be staggered in cases of hardship.
Tax experts say that anyone who appears to owe extra tax should first check the facts on their letter to make sure the updated record of employment and income is accurate.
What action should I take?
Take a look through your coding notices and compare them to your payslips to ensure your employer has applied the correct coding. Study the PAYE codes, particularly the last one, and check that all the figures in the code reflect your circumstances. If there has been a mistake somewhere, then get in touch with your tax office and make them aware of this.
If you want to challenge the new calculation, they can simply phone HMRC and ask for a recalculation. In some limited circumstances, it may be possible to ask the authorities to write off the extra money being demanded. A procedure called the extra statutory concession allows HMRC to write off tax, if it was provided with all the relevant information but failed to use it within 12 months of the end of the tax year in which the information was received.
What if you agree with the calculation?
If you agree with the calculation, you don’t need to do anything – just keep it somewhere you can find it again easily if you need to.
If the amount you owe is under £2000, HMRC will automatically collect the money from your pay during the tax year 2011-12. This spreads repayment throughout the year, but you can ask to pay it back over a longer period of time if you need to.
If the amount you owe HMRC is £2000 or more, HMRC will write to you and ask for direct payment. You can ask to pay the money back in instalments, rather than all in one go.
You can contact HMRC by phone on 0845 3000 627.
If you want any help or advice please contact Zara Radford at PAH Accounting’s official Payroll Bureau, SW Payroll