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Payroll industry concerns over plan to delay issue of tax codes

July 10, 2014


HMRC has proposed amendments to income tax regulation that will, in some circumstances, allow them to delay notification of a new tax code to an employee.  The amendment is designed to allow HMRC to manage the volume of contacts to its call centres at times when its tax workload is high.  In its performance statistics for quarter four of 2013 to 2014, HMRC listed 395,361 calls to its helplines regarding incorrect tax codes from January to March 2014, and reporting an incorrect tax code was the top reason for contacting the Taxes helpline for tax year 2013-2014.  In the explanatory note accompanying the proposed amendments, HMRC explains that it hopes to mitigate the impact on its call centres by delaying the issue of new tax codes to employees until such time as “it is best able to respond to enquiries from employees”. 

In some limited circumstances, the amendments lift the obligation to notify the employee of a new tax code completely; where there is no tax impact on the employee’s income (i.e. the employee is not liable to pay tax on his income), HMRC will not have to notify the employee of the code change at all.  The amendments also make allowances for codes to be delivered to employees electronically, rather than by paper form P2 as currently, in order to support HMRC’s increasing move towards digital communication with taxpayers.

Payroll professionals have expressed concern over the plans because of the volume of incorrect tax codes they are continuing to encounter in spite of the use of real time information on employee earnings. One of HMRC’s justifications for the introduction of its RTI reforms to PAYE was to allow PAYE to manage the frequency of job changes and the number of simultaneous employments held by many workers, citing the changed pattern of employment since PAYE was originally introduced. Kate Upcraft, commenting on the proposed amendments in her blog, said that “there has been much evidence that 14/15 codes are more wrong than ever”, and pointed out that an employee could be taxed incorrectly because there will be no delay when issuing the tax code to the employer, which the employee may not receive until later. Upcraft also points out that managing the timing of notification of tax codes does not itself tackle the problem of why an incorrect tax code has been issued, and suggests that there may be “some underlying issue with coding” which has not yet been resolved by HMRC.

The Learn Centre also questions the value of delaying the issue of tax codes, asking whether “emphasis on the timely and more accurate issue of notifications [would]have been a better objective for HMRC to be striving towards?”  HMRC’s statement that the proposed changes will have “negligible to nil” impact on employers is also queried by the Learn Centre as they anticipate employees will be prompted to query the change in their tax codes (which will be visible on their payslip) with their employer, causing a significant administrative burden.

HMRC says that there will be a maximum delay of thirty days between a code being notified to the employer and the code being notified to the employee, and that the amendments “will have no impact on individual tax liabilities, nor will they delay the issue of tax refunds where appropriate.”  The HMRC notes on the amendment also make it clear that the delay on issuing the changed tax code will not affect the employee’s right to appeal against it. However, HMRC do not address the concerns of the payroll profession that the employee may find themselves taxed incorrectly because of the delay in notifying them of a change in code.

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