Coding Out

[TN]

I used the HMRC online system to check my clients' tax payments due 31 Jan, to make sure I'd reminded everyone and had a bit of a shock.

One of my clients (a graduate on a smallish salary, student loan repayments, and a little bit of rental income) had a tax liability of around £1200 for 2009/10. We asked for this to be collected via PAYE, which HMRC agreed to do. However, the online system showed a payment due 2 March 2011 of the full amount.

I spoke to HMRC who informed me that because she has a low salary, if they adjust the code it will double her PAYE liability each month, therefore they are not able to code it out.

I said i'd never heard of this, and wondered why HMRC felt it was unfair to deduct £100 per month from her salary, but felt it was fair to ask her to find £1,200 in a short period. Apparently they've only just reviewed the case and decided not to code it out so they are giving her until 2 March to pay it. I mentioned that it would have been nice for someone to tell either me or her that they were doing this, and also if they'd decided that back in August when we submitted the return giving her some time to find the money.

Apparently there is nothing that they can do about it. If she will suffer hardship they will agree a payment plan, but this will attract interest (although no surcharges). It seems unfair that they are refusing to allow her to pay it over 12 months interest-free via PAYE because this would cause her hardship, but pushing her towards the debt management team who will probably agree to a number of installments but charge interest.

So the question is.... has anyone else seen this in practice, or have any advice as to what I can do for the client?
Thanks.

[robbob]

Hello TN

I have had a couple of letters through this week with similar issues, the letter informing us that the amount had been uncoded out.
Once was for something that should never even have been coded out in the first place(the second payment on account for a clients 09/10 tax liability - don't even ask how this ended up on a coding notice)
The other was for a liaility for £130 which they said was too large to be collected by our clients tax code.

I have previously argued the case where i think an amount can be collected and when i have explained the maths to them they have backed down and done the changes requested. I don't see any reason in principle why if a br or k code or something similar does the job they should have any problems with this. Perhpas the new compuer system does this to stop a potential awkward situation later on but this is a bit silly as you say if the client has to find all the money now.

If the client has income anything like an income of £6000 i really don't see why collecting £1200(br would do teh job nicely) via coding should be a problem,if the revenue do have a problem with this they really are losing the plot.

Unfortunately without doing some further digging im not sure what the hmrc manuals would have to say about this.

[LeeWT]

Dear All,

As you may know, we have a professional advisors' section and now a Working Together section.

If I have understood the underlying issue correctly, then this is the kind of issue that should be raised/clarified on a national level in the 'Working Together' forum.

Please let me know if you would be happy for us to do so.

Kind regards,

LeeWT

[amadeus]

I have recently received a number of letters where the underpayment for 2009/10 has beenr emoved from the 2011/12 coding. All of them were capable of being coded out and I managed to sort this without too much of a problem except in one case! The computer wouldn't put the underpayment back in and, after speaking to her manager, has had to be referred to Customer Operations which will take two weeks. I was kept waiting for almost seven minutes to be told this and still can't get rid of the file off my desk!

[TN]

Thanks for the responses. I'm going to have a go at speaking to someone and convincing them that it makes no sense, and I will also put it in writing to them.

Lee - if you think this is something that should be raised with HMRC in the working together forum then by all means go ahead. I've never heard of HMRC coding-out and then un-coding-out, so maybe it's a change of practice. It seems to be affecting other practitioners too, and therefore presumably also a number of unrepresented taxpayers.