Tax codes being issued

HMRC are advising employees that between January and March 2010 they will be issuing new PAYE coding for 2010/11. The tax codes should reflect the individual’s personal circumstances and include the tax allowances and reliefs that individuals are entitled to.

HMRC are advising that this is the first time the annual coding process will take place using HMRC's new computer system for processing PAYE, known as the National Insurance and PAYE Service (NPS). HMRC are expecting more employees than usual, approximately 25 million, to receive coding notices because of the new system. However, it appears that there may be a problem with the new coding notices, according to the Chartered Institute of Tax President Andrew Hubbard “Most people on PAYE are used to assuming that what the taxman sends them is correct. Many file away coding notices without even bothering to check them.” “But this year, many of them are being given wrong information, and unless they spot it and tell HMRC, their employer will receive the wrong information too, and they could get a nasty shock when they open their April pay packet and see it is as much as a hundred pounds lighter than they are expecting.” According to the CIOT website ‘Those affected are thought to include taxpayers who have left a job in the last few years. The HMRC database appears to have ‘lost’ the information it holds about people leaving jobs and as a result is combining taxpayers’ current employment records with old data and concluding that they have two (or more) jobs and much higher earnings than they do. Anyone with two jobs normally has their personal allowance (the portion of your income you do not have to pay tax on) counted against the job with the highest wage. As a result of the error many people will, in effect, have their personal allowance split between two jobs or allocated to a job they no longer have, meaning their current employer will be obliged to deduct too much income tax. The personal allowance will be £6,475 for most people under 65 in 2010/11. If the whole of that personal allowance is wrongly applied that would cut a basic rate taxpayer’s pay packet by about £108 a month or £1,295 a year.’ If you receive a new tax code and are unsure whether or not it is correct please let us know so we can check it for you.