RTI Coding Problems

It seems that there are, not unreasonably given that it is a new system, some teething problems with RTI. Baker Tilly reports that many thousands of employees may have been issued with incorrect tax codes.

HMRC has advised affected employers to disregard incorrect PAYE codes issued after RTI reporting started.

"The problems

Many employees who normally have their tax code restricted for benefits in kind have been given full allowances, while others have been issued with a code BR (a flat basic rate, with no allowances) or code D0 (a flat 40% rate, with no allowances). Both will result in incorrect tax deductions.

The causes

Both issues have been caused by the RTI starter and leaver processes.

Missing benefits in kind restriction

All employers had to go through a process of aligning their employee records with HMRC’s system at the very start of their operation of RTI reporting. Large employers did this by making an Employer Alignment Submission (EAS) before they submitted their first Full Payment Submission (FPS). 

Smaller employers simply submitted their first FPS, which HMRC checked against its existing records of employees on that employer’s payroll.

Any employee records that were not on the employer’s first EAS or first FPS were treated by HMRC as having ceased employment at 5 April. This deleted the record of the benefits restriction to their tax code.

When these employees were subsequently paid for the first time under RTI, and payments appeared on a later FPS, they were incorrectly treated by HMRC as new starters, with no history, so a new code was issued automatically, with no restrictions.

Missing allowances

Some employees leave their job without employers knowing before they report what prove to be the final payments.  There is no RTI mechanism for flagging workers as leavers without making a new payment, which is unlikely to happen. Under the old regime, employers could submit a late P45, but that option does not exist under RTI.

So, as far as HMRC knows, the employee is still on the ‘old’ payroll with a personal allowance, and when the computer also finds the employee appearing on an FPS from a ‘new’ payroll on a different reference, it assumes the worker has two jobs and issues a BR or D0 code for the new job, rather than transferring the old code.

Something has also gone wrong with HMRC’s base data.  Some employers are reporting a large part of their workforce receiving BR or D0 codes, which is clearly not a result of unrecognised leavers.  Some tax codes are for former jobs, delivered together with a BR or D0 code for a current job. Tax is being overpaid by a lot of people as a result.

Employer actions

Where a new tax code is obviously wrong, and an employer or employee notices, the employee should be advised to contact HMRC. 

Of course, it may not be obvious that a code is wrong, so employees who normally receive P11Ds showing benefits should be warned to check carefully any new PAYE code issued, and any new BR or D0 codes should be queried unless they are expected."

Have any loyal readers encountered such problems?

Tax does have to be taxing.

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