The next step

On payment of tax through PAYE

[Article]

http www hmrc gov uk workingtogether sg mins 20110615 pdf

[]

Codes - trouble with underpayments

Limit increased

We recently reported that the Taxman has raised the limit by £1,000 for tax bills he’s willing to collect via the PAYE system (yr.12, iss.5, pg.1, see The next step). The advantage of this is that a tax bill for 2010/11 of up to £2999.99 can be spread over the year from April 2012 to March 2013 rather than being due for payment all at once on January 31 2012. However, we’ve heard from several accountants that in some cases he’s refusing to agree to this even for amounts within the old limit, let alone the recently increased one.

Policy and system limitations

The Taxman gives two reasons for refusing to code out a tax bill:

• firstly, that the regulations don’t allow him to collect a tax bill where this would result in the PAYE tax for the year to be more than doubled (see the example below); and

• secondly, that coding out so much tax would be resented by some taxpayers.

Wrong or illogical

What the Taxman is suggesting in the first instance is that where he estimates you’ll pay PAYE tax over a year of, say, £2,500, and the amount of the tax you want collected by an adjustment to your tax code is more than this, the regulations won’t allow it. This argument has been challenged by the tax experts and as yet the Taxman hasn’t come up with proof that there is such a rule written in law. Plus, while his second argument may be well intentioned, it’s patently daft. The alternative to paying a tax bill over twelve months via extra PAYE deductions from your salary is to pay the whole lot at once, and much sooner. We’re pretty sure most people would go for option one!

The real reason

The actual reason for his reluctance to “code out” a tax bill is that his National Insurance and PAYE Service (NPS) just can’t cope with it. To be fair to the Taxman there is a precedent for not more than doubling a person’s PAYE deductions, but this isn’t usually relevant where tax bills are concerned. The trouble is that while some tax offices seem to be able to get around the NPS’s refusal to accept large coding adjustments for tax bills, others say it can’t be done for one of the two reasons we’ve already mentioned above.

Don’t take “no” for an answer

Where you meet the conditions which permit you to pay your 2010/11 tax bill through PAYE starting in April 2012 - the bill is less than £3,000 and you’ve sent in your tax return by December 31 - then don’t be fobbed off with a “can’t do it” response. Tip. If the Taxman says he can’tcode out an underpayment, send him a copy of the minutes of HMRC’s Working Together Steering Group meeting of June this year, paragraph 9.6 (see The next step). Tell him politely it’s his problem to sort out and you’re aware that some tax offices have found a way to work around the problem.

For a previous article on payment of tax through PAYE (TX 12.06.07A) and for a weblink to the Working Together meeting minutes (TX 12.06.07B), visit http://tax.indicator.co.uk.