HM Revenue and Customs have identified that for a significant number of employees, the employer is continuing to operate what HMRC consider to be an incorrect tax code.
One of the benefits to HMRC of the Real Time Information (RTI) Full Payment Submission (FPS) data being sent with every payment, is the presence of data item 55 ‘Tax code operated on this payment’.
Of course there can be a natural time lag for a new tax code to be operated, electronic updates are farely instant if they match, however posted P6’s take some time to arrive – and then, of-course, there is the timing of payroll cut-offs that impact whether a tax code has been received for application to the current payment.
However, HMRC are aware that many hundreds of thousands of reported tax codes are not correct in comparison with the individuals tax record and those, considered to have been, issued by HMRC!
Why would that be? The most common reasons are:
- Failure of the employer to obtain new start information in time for the first payment. And yes, the HMRC consider the operation of the employer declaration C 0T/1 as being an error state. Employers are required under PAYE to have the correct new start information in readiness for the first payment. Sometimes there is a waiting game for the former employers P45 (it hasn’t been issued yet), but even still, the employee must complete the new starter checklist to ensure that at least the first payment has better accuracy than 0T/1. It is interesting to note that statistics show that 5% of P45 tax codes are wrong. So if they have not yet received a P45, even if one will be issued eventually, the employee should still complete the new starter checklist declaration A (only job this tax year), B (new main job but not the first job this tax year), or C (they have multiple concurrent jobs). Equally if a P45 is received, the correct declaration should also be used (B for most tax codes except BR, OT, D0, D1, D2 where C should be used)
- The Payroll ID (PID) at HMRC is different to the number used by the employer – sometimes error creeps into the HMRC records by manual intervention applying a wrong PID – or the information if too vague. Of course National Insurance numbers (NINOs) are an important matching criteria as well, and do many new starter FPS records have this vital data missing!
- The employee or employer may have made application for some special operation and this remains outstanding for HMRC approval – such as the operation of NT for a inbound ex-pat etc. The employer may operated NT in advance of approval and therefore the FPS tax code does not match the individuals tax record status.
- The employee and employer view that the tax code issued by HMRC is wrong and have applied their own – whether that is as a result of inadvertent duplicates and historic FPS data errors.
- The P6 was never recevied or was sent to the wrong contact.
So, HMRC are implementing a new technology change to their systems to automatically issue corrections where there is a mismatch between the FPS tax code and the HMRC held tax code. Following a 2 year period of investigation and progression of the project research, an automated correction ‘controlled go-live’ is being implemented:
- From 15th April for 30 days, HMRC will identify and issue P6 corrections for the first 15,000 tax code mismatches identified.
- The intention is then from 15th May for the first 30,000 tax code mismatches identified to be issued with corrective P6 notifications.
- The project is then reviewed to see what direction and roll-out plans are from June 2019 onwards with a potential full live implementation in July 2019.
So beware – employers may receive an increased number of tax code corrections!
The HMRC project is monitoring this controlled go live phase in relation to the triggers being experienced and the impacts on employers. If you experience a concern, then feel free to message privately with some detail or contact IReeN (the electronic exchange with HMRC user network group) who can pass through to the relevant HMRC contacts for their awareness of the employer experience.