Independent Contractor Services Blog

Incorrect tax codes may have been sent out by HM Revenue & Customs (HMRC) because of an error in their new PAYE system. These codes tell taxpayers how much their employers and pension firms will deduct in income tax in the coming financial year, 2010-11.

The Chartered Institute of Taxation (CIOT) has today called 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. They added that taxpayers could be asked to pay up to £108 a month too much.

The CIOT said the scale of the problem might be indicated by the fact that this year about 25 million coding notices are being distributed, which is about twice last year’s number.

You may have been affected if you receive more than one coding notice in which both numbers are different. The CIOT have said that many people with one job are receiving two (or more) tax coding notices with different codes shown. More importantly, if this is 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.

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. 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).

Andrew Hubbard, President of the Chartered Institute of Taxation, is urging people to check through everything they receive from HMRC as currently it is your responsibility to contact HMRC if you have been affected. However, he has also called for the government to launch an urgent publicity campaign to highlight what has happened and tell people what they can do about it. He added that 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.

As taken from the Chartered Institute of Taxations’ website, they have set out exactly what they expect the government and HMRC to do and is as follows;

• 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

Independent Contractor Services will continue to monitor this situation and make updates when appropriate but if you believe you may have been affected by this, we advise you to contact HMRC as soon as possible.