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HMRC deny tax code problem is widespread

June 4, 2013


HMRC have rejected reports its RTI systems are generating incorrect PAYE tax codes for large numbers of taxpayers. HMRC’s response follows widespread reports in the national press in recent days that tens of thousands of taxpayers are affected by the problem.

The issue, first reported by at the end of May, relates to HMRC’s RTI systems creating new tax codes for employees because HMRC systems interpret employers’ RTI reporting as a notification the individual employees in question have only just started their employment. Because the affected individuals have been in the same employment for some time, and accumulated additional taxable benefits from their employer, the new tax code HMRC issues automatically in these circumstances does not reflect their additional benefits. This means the individual taxpayer will underpay PAYE, resulting in an additional tax bill or later coding adjustment to recover the additional tax on their benefits in kind that - before RTI - was paid through PAYE.

The Sunday Times reported a figure of 40,000 individual taxpayers were affected by RTI tax coding errors, although no basis was given for how this number was arrived at. However, Patrick O'Brien, speaking for HMRC, said:

“We are aware of a problem affecting a very small number of employers and a small proportion of their employees. We are working with those employers who are impacted to enable them to rectify their employee records.”

Mr O’Brien went on to say that RTI was working well for millions of employers and employees and gave a number of 1.3 million PAYE schemes which “have successfully started to report PAYE in real time”. Previously HMRC only made reference to a figure of 1m employers reporting RTI.

Subsequently, Payroll World’s website reported an unnamed HMRC spokesperson as saying “We do not recognise that figure [of 40,000 employees]".

Without HMRC’s corroboration of the number of those affected it is not possible to assess the scale of this issue’s impact.  However, HMRC were also quick to reassure employers that they were working on a solution to the problem.

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