Confusion caused by the tax office

No ‘rhyme’ or ‘reason’ for how Inland Revenue (IR) deal with certain matters. Here are two confusing and frustrating situations we and our tax-paying clients have found ourselves in.

Compare these two scenarios – In both situations the tax payers are in the PAYE system

  1. Our client A moved employment in December 2014. In January 2015 IR issued a new tax code deeming his earnings to be over *£100,000 for the year, this will not be the case, the tax code stripped out his tax free allowance. Our client requested that we find out more from IR. We were advised by them that this had been an error on their behalf that the income from the two jobs had been added together giving rise to the issue of the new tax code. We assumed that the information had been taken from monthly reports submitted by the employers, therefore, there were two reports for January, one from each employment. We concluded that the annual income had been calculated on that one month thus the automatic spitting out of a new tax code?????
  1. Our client B earned over *£100,000 since 2012, monthly reports submitted by employer advising of monthly salary paid, correct tax code not applied, exacerbated by overstated tax free amount of £4,000 for privately paid business expenses. Total tax free allowance £17,300 , child benefit to be paid back, result underpaid tax of £7,300. We spoke to IR on his behalf. Reply – Employer’s monthly reports not used to calculate correct tax codes. When asked what the reports are for, reply – they used to make certain that the employer pays over the correct amount of tax. When asked why the reports were not used to ensure the issue of correct tax codes, reply – it was up to the tax payer to contact IR if they believed their code to be incorrect. Our client had contacted IR in 2010 when earning below £100,000. We were told by IR from 2010 a 5% increase in salary per year had been estimated and that the £100,000 tax band had not been reached.

Please note the following:

  • Once earnings of £100,000 or more is reached the tax free allowance erodes away and in the above case the whole allowance of £9,440 had been withdrawn
  • If there is an underpayment in the year and the Inland Revenue are advised before 31st December and the actual liability falls below a certain percentage the underpayment can be tax coded in
  • your employer can only apply the tax code advised by the Inland Revenue.