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One in three tax codes potentially incorrect

October 28, 2013


Research by chartered accountants UHY Hacker Young has indicated that as many as one in three tax codes issued by HMRC may be incorrect.

The firm analysed tax codes sent to their clients, and found that 37% of the codes would have led to the person paying the incorrect amount of tax.  HMRC calculates tax codes based on a person’s income, so any income from an investment or benefits from an employer (such as a company car) must also be taken into consideration when the tax code is created.  In the cases examined by UHY, the errors which occurred were frequently the result of simple mistakes such as omitting the employee benefits listed on a P11D form.  One of UHY’s offices encountered 20 different taxpayers experiencing this issue within one week.

The issue of incorrect tax codes is particularly worrying as most taxpayers with fairly simple tax affairs do not get a professional to check their coding notice, and so may not find out that they have been paying the wrong tax until HMRC has reconciled their accounts for the year.  Tax partner at the firm Roy Maugham pointed out that ‘Underpaying tax is more of a problem than people realise as it can be a shock to an individual’s cash flow when HMRC moves to claw it back.’  Maugham also commented that ‘Benefits and expenses like company cars and private health cover are part of standard packages for millions of private sector employees’, meaning that the potential scale of this problem is very large.

UHY Hacker Young did not offer any opinion as to whether RTI has had any effect on the incidence of incorrect tax codes, but a similar survey by the firm carried out last year found that a quarter of the tax codes they examined were incorrect, meaning that there has been a 12% increase on the number of incorrect tax codes since last year.

HMRC’s official stance has always been that it is up to individual taxpayers to ensure that they are paying the correct amount of tax, and to tell HMRC if their circumstances change in a timely manner.

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