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HMRC's new IT system is continuing to generate 2010/11 PAYE code errors. Here HMRC explain the latest position to stakeholders.

Background Given in HMRC's Letter of 19 February 2010

HMRC's Individuals Customer Directorate writes:

Last week I explained that we were completing our analysis to identify areas of potential discrepancy in the data held by our new National Insurance and PAYE Service (NPS). 

The discrepancies may have given rise to incorrect notices of coding and we are reviewing individual cases to put them right as quickly as possible so that customers are unaffected.  

I attach below details of the circumstances where there may be the potential for codes to be incorrect. I would be grateful if you would share this with any of your people [whom] you think might find it helpful.

We will be also be publishing it on our internet site and it may help tax agents, employers, pension providers and payroll operators in identifying areas where there may be a problem and where we need to improve the quality of data in the future.  

If you have any questions or comments about this update do please get in touch with me.

Details

Annual Issue of Notices of Coding:  Data Mismatch Issues

• In some cases another employment record has been created for the same individual with the same employer or pension provider.  This can potentially lead to the wrong personal allowances being allocated against the real employment.  In the main this has arisen because the information submitted on form P14 at the end of the year does not exactly match the information we hold on our main record.  This may differ in respect of the works number or other details.
• In some instances the receipt of the P14 is the first indication HMRC hold of the employment or payment of a pension.  While personal allowances will be allocated against this source of income it is quite possible that this will not accurately reflect the personal circumstances of the individual.  A specific example of this is where an occupational pension is paid and we have not had the opportunity to reflect receipt of National Insurance benefits in the code number.
• For various commercial reasons an employer or pension provider may well amalgamate or disaggregate PAYE scheme membership during a year. In some cases that happens without HMRC's being aware so the employer reference quoted on the P14 does not match that on our systems. This can lead to duplicate records being created for the same individual.
• We have identified some records where a previous employment that has ceased has not been closed on our system.  There are several reasons why this can occur. We will correct these cases to record the fact that the employment has ceased and make any changes that are needed for the correct code to be applied against a subsequent employment.
• If a P45 or electronic notification by the employer of an employee retiring on a pension (PENNOT) has been received in 09/10 for a previously unknown employment, NPS created and then ceased the employment record.  Subsequently if a P14 was posted for 08/09 it will have triggered setting the record up again as a live employment so there is now an open employment and a tax code was issued.  This is a timing issue resulting from the late processing of 08/09 P14 data onto NPS and should not be repeated in future years.  HMRC will review these cases and correct the employment details.
• One very specific issue in relation to some of the largest employers and pension providers is the length of works numbers.  The old COP system truncated these unique identifiers to a maximum of 14 characters which was historically sufficient for employers and this shortened version was migrated into NPS.  We are aware that some employers now use a longer identifier and this is used to populate forms P14 at the end of the year.  Unfortunately this then leads to a mismatch in the data held.   NPS accepts works numbers up to a maximum of 20 characters so this should not happen in the future, but HMRC need to amend our current records to reflect the correct works number used by employers. We recently issued a technical note covering this point. 
• If a P14 is submitted with nil pay and tax but with no date of leaving included, NPS will have created an employment record and may have issued a tax code accordingly which could be incorrect.
• Where there are two live employment records, NPS will automatically allocate any unused allowances at the primary source to the secondary source.  If there are more than two employments but some allowances are still on the primary record manual intervention is required to allocate these to additional secondary sources.  HMRC will amend these codes to ensure that all allowances are correctly allocated.

In addition to these, we provide a regular update of IT issues for the National Insurance and PAYE Service (NPS) that we are currently in the process of fixing or have already fixed. 

We will shortly start to issue P9s to employers but some may not receive as many as they were expecting.  Most P9s will be issued to employers as normal, but we are reviewing those individuals [whom] we think are most at risk of receiving an incorrect tax code.  We will not send out P9s for these until we have reviewed these cases.