Coding Matters

It seems that the thorny issue of tax codes has raised its head again.

The Telegraph reports that up to three million people with more than one source of income face backdated tax bills of £2,000 per year, because of errors by HMRC.

Among those most likely to be affected are veterans who have taken a civilian job after leaving the Armed Forces, but who also draw a military pension. Pensioners with two pensions and those who have continued to work part-time after retirement are also more likely to be hit.

It seems part of the problem lies with a the fact that tax offices around Britain are failing to share information about taxpayers’ incomes on a central database.

HMRC insists that the problem is not “systematic”, and says the vast majority of tax codes are correct. However, professional tax advisors are seeing a rise in cases where incorrect tax codes have been issued.


Clive Stevens, the executive chairman of accountancy practice Reeves, who sits on the council of the Institute of Chartered Accountants in England and Wales, is quoted:

“Often when people have two sources of income, two tax codes are issued by separate HMRC offices, each acting on the basis of information given to them by an employer, pension provider or the taxpayer directly. 

Clerical errors are made because the workforce, which has suffered sweeping redundancies, is demoralised and the required attention to detail and care is not there.

In my experience, up to three out of five PAYE codes that we see in our office are incorrect when first issued. In the worst cases, it has taken 10 attempts to get a correct code from HMRC.”

An HMRC spokesman said such problems should have ceased since the introduction of centralised record-keeping in 2009, adding:

“Over 98 per cent of tax codes are correct and the vast majority of people who pay their tax through the PAYE system on either earned income or pensions pay the right tax.”

Alastair Rush, of financial advice firm Echelon Wealthcare, said the situation is worsening.

“HMRC seems to be imbued with the concept that it’s infallible.

It prefers to pretend the system works just fine when we all know it doesn’t.

It produces errors with almost casual disinterest which cause a huge mess for clients, families and their employers. I wish it would hold itself to the same measure of accountability that it attaches to its customers.”

When errors are identified, HMRC is demanding back payments even where, under concessions (ESCA19) aimed to protect taxpayers, it has no right to the money because it was at fault. However, HMRC is unmoved and insists that "due to improved processes", it would only now apply in “very unusual circumstances”.

Views and comment from the frontline are, as always, very welcome!

Tax does have to be taxing.

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