Tax code

[xoggoth]

I know they may reduce tax code for a BIK but but HMRC have added the sum I claimed from my company as business expenses to give me a higher tax code. Not that I'm complaining but puzzled, they haven't done that before. Is this summit new?

[Bob Jones]

It sounds to me that they have made a mistake - if you have claimed this expense from your company then there is no allowance to be included in the code - do you have a dispensation? If you do not have a dispensation then I assume that on your tax return you declared the reimbursement and claimed it as an allowance - as in one cancels out the other. If that is the case then HMRC have been known to include the allowable element in the code and not take into account the reimbursement - in fact HMRC have been known to insist on including last years allowable expenses and REFUSE to include the reimbursement.
I have a number of coding issues under enquiry with HMRC at the moment - I have sought Counsel's opinion in one area and am prepared to take HMRC to the Commissioners and on to the High Court if necessary.
Could you do me a favour - could you ring me tomorrow on 01244 310547 as I would like some more information - as you may have gathered this is a much wider issue ...
Regards

Bob
www.internet-taxation.co.uk

[xoggoth]

Cheers, thought I may have made a mistake on my tax return but it's ok, claimed and expenses do cancel out. Actually I have no idea where the amount comes from, it isn't any figure on my tax return or my last P11 either. They have also subtracted an amount for phone which appears to come from my 2007 P11D!

I really don't know why they carry expenses forward like this unless specifically told not to, they must know they vary from year to year, it's a daft system.

[Bob Jones]

They carry them forward because of Regulation 14(g) Statutory Instruments 2003 -- http://www.opsi.gov.uk/si/si2003/20032682.htm#14
Have a look at Reg 14(a) - that one refers to title to relief being established - they don't use that as no title has been established so they use the catch all at Reg 14(g).
If they get it wrong it can cause large underpayments of tax - but they aren't bothered as they can then amend a later tax code and collect it back -unless you are after the deadline with your tax return in which case it is demanded in a lump sum ..
If a person has a regular travelling appointment over a fixed area then it is possible to arrive at a reasonable estimate and it is arguable that title to relief has been established but where a person is travelling to temporary workplaces first of all there is no pattern on which to base a reasonable estimate and secondly the 24 month rule could begin to apply and what was allowable is now no longer the case.
If anyone has been seriously affected by coding issues such as this I would like to know - plse email me at [email protected] ..
In your case, however, it would appear that they have not taken into account reimbursement and the code will be wrong and you will be underpaying tax.
Whay happens is that the computer checks the entries on the self assessment tax return against the code and differences are flagged up - a member of HMRC staff then checks the resultant list and includes the expenses in the code but doesn't include the corresponding reimbursement. Call centres are now under instruction not to remove expenses from codes but neither do they seem to understand that they should include reimbursements.
Regards

Bob
www.internet-taxation.co.uk

[Nixon Williams]

I know they may reduce tax code for a BIK but but HMRC have added the sum I claimed from my company as business expenses to give me a higher tax code. Not that I'm complaining but puzzled, they haven't done that before. Is this summit new?

As has already been mentioned HMRC often make mistakes on the tax codes.

However, if you complete a personal Tax Return, the "error" will be corrected when you complete this.

Whilst an incorrect tax code can result in over/under payment of tax under PAYE, provided the Tax Return is correctly completed then the tax position will be corrected and and under/over paid tax taken into account.

Another common HMRC tactic is to code savings income into the tax code, the effect of this is to collect tax from you earlier than it is technically due.

You can call HMRC and ask them to stop this, however as mentioned above, if you complete a personal Tax Return, this early payment of tax will be taken into account.

Alan

[ASB]

They seem to have changed their practice this year.

Previously they would add last years expenses to my code and then reset the code when I asked them to. This year they refused point black to reset.

The effect of this of course is that if my allowable expenses are less this year than last I will owe them money. Personally I prefer it the other way.

[Bob Jones]

The change in practice occurred some time ago but it is only now that the message is filtering through to the call centres.
The purpose of the coding system is that a taxpayer receives the correct amount of allowances throughout the year.
I take the point that this can be corrected but I have actual cases where underpayments in excess of £1000 have arisen because of HMRC insistence in including last year’s expenses in this year’s code – one person is underpaid about £1200 and has now retired.
In other cases an amended code containing travel expenses is issued to someone who is unemployed. The coding notice states that it is not possible to operate the code at the moment but it will be operated when you obtain work or receive a pension or job seekers allowance – the wording is something like that – so to a 65 year old who has just retired they are saying here is the code – it contains travel expenses and these will granted when you start to receive a pension?????????
If a person is entitled to expenses for one year only HMRC will code that amount for the following year and note the record that the same amount is also to be included in the code for the year after that – so – if you incur one off expenses of £4000 in 2007/2008 another £4000 will appear in your code for 2008/2009 and again in the code for 2009/2010. You may have difficulty persuading the call centre to remove the expense from the code for next year and if the code is amended now, as in right at the end of the year, you will receive a repayment through your salary and HMRC will not be able to retrieve the situation. HMRC view is that they will simply correct the error but if the money is paid straight into the bank and you are overdrawn the overdraft is reduced and you may not be able, if you wanted, to refund the money to HMRC – otherwise it will be collected through a later years code by which time there have been further fluctuations and so and so on ....
In the case of temporary workplaces HMRC are reducing coding to a game of chance...
Bob

[xoggoth]

Lots of good comments, ta. As I am retired anyway and don't pay any salary (the company in question doesn't have enough profit to pay any even if I wanted to) it is fairly academic for me. It all seems to have got a lot more confusing than it used to be, sure they only based it on the tax return once.

[PayMatters]

Does your tax code end in a k i.e. it is a negative tax code. If it does making it bigger would make sense i.e. it's become a bigger negative meaning you pay more tax!