CIOT: HMRC urged to take action over tax code problems

Monday, 25 January 2010 12:00 AM

HM Revenue and Customs (HMRC) are being urged to do more to alert people that they may have been sent the wrong tax code.

The Chartered Institute of Taxation (CIOT) is calling on HMRC to be proactive and mount a publicity campaign to highlight that wrong information is being sent out to huge numbers of people that, unless corrected, may cost them hundreds of pounds.

The extent of the problem is shown by the fact that HMRC is issuing around 25 million tax coding notices this year, roughly double the number issued last year. It is clear that a significant proportion of these are wrong.

Those affected have been sent a wrong tax code by HMRC as a result of an error in a new PAYE system. Many people with one job are receiving two (or more) tax coding notices with different codes shown. If not corrected by HMRC in the next few weeks, wrong information will be sent to huge numbers of employers and pension companies which will lead them to deduct the wrong amount of tax from many of their employees and pensioners.

Andrew Hubbard, President of the Chartered Institute of Taxation, said:

"Most people on PAYE are used to assuming that what the taxman sends them is correct. Many file away coding notices without even bothering to check them.

"But this year, many of them are being given wrong information, and unless they spot it and tell HMRC, their employer will receive the wrong information too, and they could get a nasty shock when they open their April pay packet and see it is as much as a hundred pounds lighter than they are expecting.

"The Government should launch an urgent publicity campaign to highlight what has happened and tell people what they can do about it. They also need to add a specific warning about it to the majority of P2 notices - the letters containing tax code information - which have still to go out.

"This comes at the worst possible time of the year for HMRC, whose enquiry systems are already stretched to capacity by people seeking advice ahead of the self-assessment deadline at the end of January. The new PAYE system is potentially very good and this is really just a teething problem - but a serious one that HMRC need to warn taxpayers and their advisers about and help them resolve."

The CIOT is calling on the Government / HMRC to:

Issue a clear public statement of the extent of the problem and what they are doing to tackle it

Mount a major publicity campaign, including a proactive media strategy, adverts in the national media and a clear, easy to find message on their website to highlight the issue and explain to people how to check whether their tax code is correct
Provide additional resources to HMRC to deal with the huge increase in enquiries that is likely to come from this error. (We understand that call waiting times have increased significantly this week)

Check the issue of P2 letters yet to go out - or circulate a note with each with a specific warning explaining how to check the code and if it is incorrect whether they need to contact HMRC immediately

Launch a publicity campaign aimed at employers and pension companies to tell them what to do if they receive tax code information for former employees or receive more than one code for a current employee or pensioner

Notes to Editors

1) Tax code information is sent to many of the people in the PAYE (Pay As You Earn) system and pensioners annually in a P2 notice (see http://www.hmrc.gov.uk/p2/p2.pdf. These are being sent out between the first week of January and the first week of March. Taxpayers have a small window of time in which to identify and point out any errors before employers are informed of their employees' tax codes in P9 notices which are issued during March. The tax codes apply to the coming tax year (April 2010 - March 2011).

2) The problem has arisen due to the move to the new NIC & PAYE system (NPS), potentially a major step forward by HMRC. Those affected are thought to include taxpayers who have left a job in the last few years. The HMRC database appears to have 'lost' the information it holds about people leaving jobs and as a result is combining taxpayers' current employment records with old data and concluding that they have two (or more) jobs and much higher earnings than they do. Anyone with two jobs normally has their personal allowance (the portion of your income you do not have to pay tax on) counted against the job with the highest wage. As a result of the error many people will, in effect, have their personal allowance split between two jobs or allocated to a job they no longer have, meaning their current employer will be obliged to deduct too much income tax. The personal allowance will be £6,475 for most people under 65 in 2010-11. If the whole of that personal allowance is wrongly applied that would cut a basic rate taxpayer's pay packet by about £108 a month or £1,295 a year.

3) The Chartered Institute of Taxation (CIOT) is a charity and the leading professional body in the United Kingdom concerned solely with taxation. The CIOT's primary purpose is to promote education and study of the administration and practice of taxation. One of the key aims is to achieve a better, more efficient, tax system for all affected by it - taxpayers, advisers and the authorities.

The CIOT's comments and recommendations on tax issues are made solely in order to achieve its primary purpose: it is politically neutral in its work. The CIOT will seek to draw on its members' experience in private practice, Government, commerce and industry and academia to argue and explain how public policy objectives (to the extent that these are clearly stated or can be discerned) can most effectively be achieved.

The CIOT's 14,900 members have the practising title of 'Chartered Tax Adviser'.

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