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Where Taxpayers and Advisers Meet
PAYE Tax Codes: HMRC Proposes to Give Itself a Breather – at Taxpayer’s Expense…
11/07/2014, by Lee Sharpe, Tax News - Income Tax
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“Put yourself in the taxpayer’s shoes”, Adjudicator tells HMRC. Now, how do you feel if HMRC cuts your tax code and takes 30 days to tell you..?

Well, it never rains but it pours. Yesterday we were busy with the Adjudicator’s report but we did not overlook something that HMRC published a couple of days ago, innocuously entitled: “Maintaining Customer Service Levels in Peak Periods – Draft Legislation”

At this stage, you might suppose that this was about HMRC raising its game to ensure that the taxpayer was provided with an adequate level of service – which would be most welcome. Unfortunately, you’d be wrong. This draft legislation is not about maintaining (acceptable) service levels at all, but rather reducing the standard to a level which HMRC thinks it might be able to cope with.

Coding Notices are one of the key ingredients of PAYE: it is HMRC telling the employer how much / what rate of tax to apply to an employee’s salary, or pensioner’s pension. It is the only warning a taxpayer gets that his or her take home pay is about to change.

HMRC proposes no longer to send an updated Coding Notice to the employee or pensioner, where HMRC thinks it will not affect the taxpayer’s net salary or pension. While this seems fairly tame, and to an extent understandable, the chances seem quite high that this will result in someone getting far less income than they expected, without any explanation. PAYE and RTI are hardly error-free.

Perhaps more worryingly, in terms of the number of taxpayers likely to be adversely affected, is the proposal that HMRC will send a revised tax code to the employer or pension provider, and give itself up to 30 days to tell the taxpayer. Bearing in mind that the employer will probably be advised electronically, but the taxpayer will be notified by 2nd class post via HMRC’s facilities – which are already notoriously slow – it seems quite likely that this will stretch the time to 40 days.

Which means that there could easily be two monthly salary payments, or 5 weekly wage payments, before the employee has some explanation as to why his or her take home pay has fallen through the floor.

Why HMRC thinks that this will reduce telephone enquiries is a mystery. Practically speaking, an employee concerned with a reduction in take home pay is likely to ask his or her employer first. Employers only receive the tax code itself, rather than the full explanation sent to an employee, so they will normally be unable to help, even if they want to, or have the time.

If the change in code results in only a small change in take-home pay, then perhaps it will be acceptable to an employee to wait 30-40 days. But if the change means the employee cannot pay his or her mortgage, then they might not be able to wait that long.

While HMRC may say that it will all come out in the wash at the end of the year, this is no consolation to someone who suddenly finds they cannot pay their rent.

While the explanatory memorandum emphasises this will not change an employee’s “right of appeal” against a tax code, HMRC seems incapable of grasping that the damage will already have been done. Given that PAYE regime allows HMRC to delve into a taxpayer’s pocket using estimated figures and on a provisional basis, it is clearly essential that a taxpayer be allowed the earliest available opportunity to dispute HMRC’s calculations.

But this draft legislation aims to do away with this perceived inconvenience for HMRC, so that it can say that it is meeting new, lower standards. Would it have been beyond their wit to ensure that they gave themselves that extra time only when it meant that they code was increased, so that it only applied when the taxpayer would end up better off..?

About The Author

Lee is TaxationWeb's Articles & News Editor and writes for TaxationWeb. He is a Chartered Tax Adviser with experience of advising individuals and owner-managed businesses over a broad spectrum of tax matters.
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