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Where Taxpayers and Advisers Meet

Week 1/Month 1 basis tax code usage.

Silvabod
Posts: 6
Joined: Thu Dec 06, 2012 4:27 pm

Week 1/Month 1 basis tax code usage.

Postby Silvabod » Wed Aug 14, 2019 11:06 am

As a former tax officer (>50 years ago!) I understood it - Major reduction in a tax code late in the tax year results in an accumulated heavy tax deduction in the week/month it is applied. "Week 1/Month 1" basis was introduced to avoid that hardship to a taxpayer - from the time of change he/she is paying the correct tax, the accrued underpayment to that date would be assessed/adjusted the following year. Same fact/principle applies, 50 years on.

However, in my current experience, Month 1 application/usage is being taken to ridiculous lengths. Last tax year my code was reduced in February because of an assessed underpayment of £12 (actual). If applied normally, I would have paid an extra £11 on top of my "normal" monthly tax deduction of several hundred ££. But no - in their "wisdom" the tax office notified my pension provider the reduced code as "Month 1" basis, resulting in just £1 extra being collected, leaving £11 accrued underpaid tax. This year, I've just received an assessment and tax code reduction reflecting this underpayment - same scenario, tax code reduced on a Month 1 basis, even though the actual sum underpaid is paltry. Remember, the original underpayment is now from 2 years ago!

This of course will result in THIS year's tax being again underpaid by a small amount, which won't be picked up till next tax year, and away we go again. Completely avoidable if only Month 1 was used sensibly - it's common sense that someone paying hundreds a month in tax would not be inconvenienced by an additional tenner in one month.

QUESTION - What's changed? Is Week 1/Month 1 automatically applied when a tax code is reduced? Is there no "human" overview of such things?

robbob
Posts: 2842
Joined: Wed Aug 06, 2008 4:01 pm

Re: Week 1/Month 1 basis tax code usage.

Postby robbob » Wed Aug 14, 2019 11:47 am

Whats changed is that hmrc have deemed their super useless computer is a fit and proper "entity" to churn out useless tax codes - the new dynamic tax codes being issued are IMHO much more prone to not be fit for purpose for alot of bods. In reality the computer only does what it is told so the department that sets up the logic instructions for these tax code changes should be due a decent seeing to so that known unsuitable codes don't get used - i wouldnt hold your breath as o don't even know if that department exists or has a name.

However having said all of that as far as i am aware normally an in year tax code adjustment now as you mentioned should be pimped up to collect the full amount of extra tax due - eg if 2k needed removing from your tax code for the full year and they did the adjustment in month 7 - then they would deduct 4k from your tax code for the final 6 months so that they should have caught up. I don't know why your particular adjustments arent working ? - perhaps its semi old school not dynamic coding as such to limit the damage for the last month and collect the unpaid tax later on via the year end calc.

The main problem with the w1/m1 is that invariably for bods with income that changes from month to month or once or twice a year - can inflict a material under or over payment.

as you say why they don't simply do a cumulative adjustment when appropriate ? i know not why.

final question are you sure the very latest change for 19/20 isnt structured to collect the full amount of tax o/s - ie has been suitably pimped up in size for the earlier missed months

Note i have successfully argued with hmrc that cumulative code should be used but sometimes they simply cant overwrite what the computer has done with these dynamic changes.

Silvabod
Posts: 6
Joined: Thu Dec 06, 2012 4:27 pm

Re: Week 1/Month 1 basis tax code usage.

Postby Silvabod » Wed Aug 14, 2019 1:23 pm

Thanks for your reply - I suspected it might be the result of automation. I might be old, but there's nothing wrong with computers - it's their programming that's faulty (the human element). 99.9% of the time, programmers have no idea of the practical aspects of their programs (and by and large are contractors, with no knowledge of the original logic and purpose anyway ).

Given it's computerised, I don't think your theory of "pimping up" allowances could work, as that would take human intervention ?
Assuming SR tax (20%) - to collect £20 underpayment requires a full-year allowance reduction of 100 (so a code reduction of 10). Your "pimping" would have to take into account current date, then calculate the percentage of the tax year remaining in order to calculate the allowance decrease. Be interesting to see that explained to the average taxpayer in his notice of coding! It would also be a complicated (but not impossible) bit of programming. What it COULDN'T take into account is external deadlines - companies frequently have systems that cannot implement "current month" payroll changes till the following calendar month.
The two mid-year code reductions I've had in the last 2 years recalculate my allowances to recover the actual underpayment (i.e -100 to collect £20, no "pimping").

robbob
Posts: 2842
Joined: Wed Aug 06, 2008 4:01 pm

Re: Week 1/Month 1 basis tax code usage.

Postby robbob » Wed Aug 14, 2019 2:58 pm

Given it's computerised, I don't think your theory of "pimping up" allowances could work, as that would take human intervention ?
Assuming SR tax (20%) - to collect £20 underpayment requires a full-year allowance reduction of 100 (so a code reduction of 10). Your "pimping" would have to take into account current date, then calculate the percentage of the tax year remaining in order to calculate the allowance decrease.
I can vouch that it does work out as i have advised for some situations and i am presuming the computer must do these calculations - with rti submissions its pretty simples for the computer to know exactly where it is at in that regard as in what week or month number the next payroll run will be after that the maths is pretty easy.


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