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Taxpayers should check their Pay As You Earn (PAYE) coding notice from HMRC to ensure that they are paying the right amount of tax.

Many taxpayers do not realise they may be paying more tax than they should. Others may not be paying enough and may not realise that they have a responsibility to let HMRC know.

John Cullinane, President of The Chartered Institute of Taxation (CIOT), says: “Those taxpayers who complete a self-assessment tax form are given an explicit opportunity to state how much tax they should pay.  For everyone else the PAYE code is effectively their tax return - yet most UK taxpayers assume the PAYE code and coding notices are correct.  This is like signing your tax return without reading it.” 

The CIOT recommends that all PAYE taxpayers check their PAYE code and coding notices they receive against their own income and reliefs that may be available. There is information on the HMRC website about income that must be reported and reliefs that may be claimed. PAYE taxpayers should keep records of their income, the tax they have paid and check any communication HMRC send them.

Recent research undertaken on behalf of the CIOT revealed that some 47% of UK taxpayers polled said they never checked to see if their PAYE code is correct. 42% said they found it ‘very’ or ‘fairly’ difficult to understand if they are paying the right amount of tax.

The National Audit Office Report published in December 2006 indicated that HMRC estimated that last year taxpayers may have overpaid around £500 million via PAYE, and that £1 billion of tax may have been underpaid. They estimate that 5.7 million taxpayers may not be paying the right amount of tax.

TaxHelp for Older People (TOP), an independent free tax advice service for older people on low incomes who cannot afford to pay for professional advice, says that PAYE coding checking and advice is by far the biggest area of problems in which they contacted - 42% of calls to TOP in 2006/07 were on coding problems alone.

The CIOT is now endeavouring to bring this issue to the public’s attention by urging people to keep their tax records and making sure they understand their tax code.

Robin Williamson, Technical Director, of the CIOT’s Low Incomes Tax Reform Group (LITRG), comments: “The work we do with people on low incomes highlights how difficult the tax system can be.  People have a right to be able to understand what they are paying in tax.  LITRG campaigns to ensure that the system does not disadvantage the unrepresented.”

For anyone struggling with their PAYE code, the CIOT recommends they first contact their local Tax Office.

Links

Chartered Institute of Taxation
TaxHelp for Older People
Low Incomes Tax Reform Group