PAYE tax code errors down to 1% says HMRC

Polls by Fleet News and ACFO have lent support to a claim by HM Revenue and Customs (HMRC) that the introduction of real-time information (RTI) reporting last year has drastically cut incidences of inaccurate tax codes.

HMRC claims that the accuracy of annual PAYE coding notices sent to employees, which are based on information HMRC receives during the year, is now 99%.

A straw poll of ACFO members, at its recent AGM and ‘Another Fines Mess’ seminar, found coding notices for 2014/15 were correct.

The fleet managers spoken to, who collectively run fleets numbering many thousands of vehicles, all said they were unaware of any complaints from drivers that their 2014/15 coding notices were incorrect.

Meanwhile, an online poll by Fleet News found only 21.4% of fleet decision-makers said their drivers had received an incorrect tax code from HMRC for company car tax. A total of 78.6% answered that their tax code was correct.

When Fleet News asked the same question two years ago  the response was almost exactly the reverse, with three-quarters (75%) saying their drivers had received incorrect tax codes.

HMRC sent out approximately 13 million 2014/15 notices of coding this year. A 99% accuracy rating means about 130,000 would be expected to be incorrect.

A HMRC spokesman said: “The vast majority of people are paying the right tax at the right time through PAYE.”

He added that any incorrect notices were due to HMRC not being in possession of the very latest information on employees’ pay and benefits or inaccurate information being supplied by organisations or employees.

Last year, fleet managers were urged to encourage employees to double-check their payslips after warnings that more than 40,000 workers could have been in receipt of incorrect tax codes following the introduction of RTI (Fleet News: June 19, 2013).

The introduction of RTI in April 2013 enabled employers to report employees’ pay details in real time.

However, the launch of the system was hampered by numerous issues, including incorrectly assuming workers had ceased employment and stripping taxable benefits such as company cars and private healthcare from their PAYE code.

Two years ago (2012/13 tax year) Fleet News reported that some fleet decision-makers discovered their company car drivers were among those given the wrong tax codes, resulting in either a tax under- or overpayment until the error could be corrected.

Evidence gathered by Fleet News revealed that tax code errors were typically due to a change in an employee’s circumstances during the tax year. Although updated
information may have been sent by either the employer or employee to HMRC, it had either not been acted upon or was acted upon incorrectly.

Three years ago (2011/12 tax year) ACFO highlighted concerns that local HMRC offices were ‘altering’ company car P11D values because they believed those quoted
were incorrect.

ACFO compiled a list of more than a dozen examples, which HMRC investigated, but no case was proven. ACFO said it subsequently heard nothing further from its members.

Employers reporting PAYE in real time should ensure employees’ tax records are accurate, so they won’t face overpayment or underpayment issues at the end of every tax year and get the correct benefit or tax credit payments every month.

Previously, employers informed HMRC what deductions they had made from employees’ pay at the end of each tax year, which meant the tax office was always playing “catch up” in terms of coding notices and the amount of tax collected or repaid.

One leading fleet manager told Fleet News her employer had a policy in place for a number of years of deducting tax due on employees’ pay and benefits at source and then paying the amount in one lump sum to HMRC.

“It is straightforward and efficient for both employers and employees and means that the correct deductions are made monthly via payroll and there is no catch-up being played through tax codes,” she said.

“Additionally, HMRC has the tax it is due quicker. I don’t see why more employers do not take this approach, but maybe it is the way forward with the introduction of RTI.”