Between mid-January and early March 2012, HMRC are issuing PAYE Coding Notices for the 2012/13 tax year. LITRG explains that you should check yours, particularly regarding ‘underpayment restrictions’.
02/02/2012, by Low Incomes Tax Reform Group, Tax Articles - Income Tax
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Background
HMRC anticipate that for the coming tax year, 2012/13, they will issue around 17 to 18 million PAYE codes to employees and pensioners. These began to be issued in mid-January and will continue to be sent out until March 2012.
This article is broken down into various sections, for ease of reference:
- PAYE Codes – the basics
- ‘Underpayment restrictions’
- Self-assessment taxpayers – check your PAYE Code online
- Telephoning HMRC and issues for people with disabilities
1. PAYE Codes – the basics
A PAYE Coding Notice tells you what tax code your employer or pension provider is going to use to deduct tax from your wages or pension. Always check yours, as you could pay too much or too little tax if it is wrong.
Contact HMRC if you think your code is wrong or if you do not understand it. And, when you get your first pay packet after the new tax year starts on 6 April 2012, check your payslip to make sure that your employer or pension provider has used the same code as the one you have received.
If you do not receive a notice (or notices, if you have more than one job/pension), don’t panic as HMRC do not usually send you one if your circumstances have not changed and your code is simple. But you should still check your code is correct – check what code is being used (it should be shown on your payslips) and again contact HMRC if you need clarification.
If you have more than one source of PAYE income (job and/or pension), you might receive two notices of coding in the same envelope. Where you do have more than one source, check the codes on each of them and try to understand how they work together.
2. ‘Underpayment restrictions’
HMRC can collect up to £2,999 of tax underpaid for earlier tax years through your PAYE Code.
If you have received a coding notice for 2012/13 which includes such a restriction, check four things. First, that you are liable to pay the underpayment shown; that if so, the underpayment agrees with the P800 form you will have received previously; that the PAYE code shows the right underpayment figure; and whether the underpayment can in fact be collected if you have been sent a ‘K code’.
In greater detail:
- Check that there is no dispute about whether or not you need to pay the underpayment shown. If you are not sure about this, see our guide: ‘PAYE underpayments 2011 – help for you’.
- The underpayment figure must agree with ‘P800’ calculations HMRC sent to you previously. The figure to be collected in 2012/13 might be part of the total you owe if you have agreed to spread payments over more than one tax year. The total underpayment figure might also be made up of tax owed for more than one earlier year.
- The underpayment should be correctly reflected in the restriction shown in your PAYE code so that the right tax is collected from you.
- If you have received a ‘K code’, this could indicate that it is not possible for you to pay back the underpayment over just one year. When using a K code, your employer or pension provider has to restrict their tax deductions to the maximum 50% (half) of your income from that source. If this is the case, to collect the balance of tax you owe, HMRC might later send you a self assessment form, ask you to come to some other arrangement to pay it direct to them, or include a further underpayment restriction in your 2013/14 PAYE Code.
What to do if you don’t agree
There could be a range of circumstances which make you unhappy to accept the restriction in your coding. These could include:
- The coding notice is the first time you have had any indication from HMRC that you have underpaid tax
- HMRC have not explained to you how this underpayment has arisen
- You believe that either your employer or pension payer was at fault or that HMRC failed to act upon information in their possession, and you are waiting for HMRC to investigate fully.
The restriction shown in the Coding Notice will be applied to your pay or pension from 6 April 2012, but you may not wish your employer or pension payer to operate the restriction unless HMRC convince you that the alleged underpayment is correctly calculated.
You can try to stop it by lodging with HMRC a formal objection to your code. You have to approach HMRC as your employer or pension payer has to use the code with which they have been issued.
Once HMRC receive your letter, they may reconsider the code and amend it by agreement with you. If you do not reach agreement, you can appeal against HMRC’s decision, through their internal review process and/or to the independent tax tribunal.
3. Self-assessment taxpayers – check your PAYE Code online
Late last year, HMRC launched a new facility to enable self-assessment customers to view their PAYE Coding Notices online. Before you can use it, you must have registered for HMRC Online Services and enrolled for the self-assessment online service.
Initially you will only be able to view coding notices issued on or after 11 October 2011, or the date you registered for the self-assessment online service, if later. If you are already using the self-assessment online service, coding notices issued on or after 11 October should be available to view online. HMRC say that in due course, you will be able to view PAYE Coding Notices - issued on or after 11 October 2011 - for the current, previous and next tax year.
More details are available from HMRC.
4. Telephoning HMRC and issues for people with disabilities
Whenever you telephone HMRC, make sure you take a note of the call in case there is a dispute later.
HMRC’s telephone number 0845 3000 627 will be shown on the Coding Notice. But, from the Coding Notices we have seen and accompanying flyer, unfortunately no messages are given as to the help available if you have a disability.
If you have impaired hearing or speech, HMRC have a textphone alternative of 0845 302 1408. And if you have impaired eyesight, you can request copies of all correspondence from HMRC, including Coding Notices, in alternative formats such as large print.
Useful links
A version of this article, with a number of useful links to information relating to the content, is available on the LITRG website.
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