New codes - another tax grab by the government?
Tax code season
The Taxman is about to embark on his review of annual benefits and expenses return forms P11D (see page 8 of this issue, yr.12, iss.5, pg.8). This will lead to many directors being issued with amended tax codes for the current year, and it will also be the starting point for working out your 2011/12 code. The latter will be sent out early next year, and we’re anticipating trouble as the Taxman responds to government pressure to get tax in quickly. We believe he’ll be including code adjustments that might step over the mark of what he’s allowed to do.
Taxman’s rights
The Taxman writes his own rules on what adjustments for allowances, income, reliefs and expenses he can add or take away in working out your tax code. These are set out in the so-called PAYE Regulations. Fortunately, they are scrutinised and approved by the Treasury before they become law. Nevertheless, the Taxman gives himself plenty of scope to take account of tax you would usually expect to pay through your self-assessment. By doing so he can get his hands on your money sooner.
Example. Jim is a director of Acom Ltd; apart from his salary he draws dividends of £10,000 each year, has a company car, receives rent from a holiday cottage and interest from various deposit accounts. For the current year the Taxman adjusted Jim’s code to collect tax on his company car. This means that for 2010/11 Jim started to pay PAYE tax on this in his April 2010 salary. For the remaining income, Jim pays tax of £4,000 through self-assessment but this won’t be payable until January 31 2012. The Taxman issues a 2011/12 code to Jim. As well as an adjustment for his company car, the Taxman includes the tax he estimates Jim will owe on his dividends etc. Jim will start paying this in April 2011; under self-assessment it would be January 31 2013.
Leave it out!
The PAYE Regulations allow the Taxman to include almost any adjustment in your code, but he can’t force you to accept these unless they relate to earnings from your job or pensions you receive.
Tip. You can simply ask the Taxman to take out coding adjustments that relate to anything else other than earnings or pensions. In our example, Jim can insist that the Taxman remove all other adjustments from his code other than the one for his company car. By doing this he’ll defer payment of tax on his other income by up to 20 months.
Put it in writing?
In the past the Taxman insisted that where you wanted your code amended, for any reason, you should put your request in writing. However, he issued a statement several months ago saying that you can make the request by phone (see The next step). You can, of course, write if you prefer, but the Taxman’s current record suggests you’ll be waiting between two and three months before your code is amended. Our advice is to call and insist the adjustment is made while you’re on the phone.
For a link to HMRC’s statement, visit http://companydirector.indicator.co.uk (CD 12.05.06).
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