As many as 1 in 3 tax payers at risk of paying the wrong amount of tax due to PAYE errors

Publications that covered this sroty include that Daily Telegraph and The Guardian, 26 October. It also featured as a story on the BBC Your Money show, Saturday 26 October 2013.
  • Tax due on benefits such as company cars proving to be a major problem area

As many as 1 in 3 taxpayers could be in danger of paying the wrong amount of tax due to HMRC issuing incorrect PAYE codes, according to our research.

Our analysis of tax codes sent to clients revealed that around 37% would have resulted in people paying the incorrect amount of tax.

Errors in the amount of tax taken out of pay packets by HMRC are of particular concern because most taxpayers will not question them. This means they may end up paying more tax than they are supposed to, or could end up owing HMRC significant sums that will eventually be clawed back when the error is spotted.

Roy Maugham, Partner at our London office, comments: “Mistakes most frequently occur when someone has several sources of income, for example income from an investment as well as a salary and benefits from their employer, or where they have received a large one-off sum such as a dividend payment.”

“HMRC really needs to make more of an effort to eliminate these errors as generally people trust its calculations and assume that they are paying the correct amount of tax.

“If taxpayers do spot a mistake, it is now an even bigger headache to sort out because HMRC has made it harder to challenge unfair tax bills.”

Errors in processing tax on benefits in kind

Although the national average error rate is likely to be slightly lower than 37%, as their clients frequently have more than one income, many of the mistakes involved were quite basic. This year, one of their local offices saw errors for 20 different taxpayers in just one week relating to benefits provided by employers, such as company cars and private health cover, which are usually set out on a P11D form.

Our research explains that in most of these cases the code sent by HMRC completely omitted to account for the tax due on the benefits, a mistake that could mean individuals are underpaying their tax by thousands of pounds.

Roy adds: “Underpaying tax is more of a problem than people realise as it can be a shock to an individual’s cash flow when HMRC moves to claw it back. The majority of people will have forgotten to make an allowance for this, and so their finances might be strained.”

“Benefits and expenses like company cars and private health cover are part of standard packages for millions of private sector employees. Their tax affairs are not necessarily very complex, and in most cases they won’t use an accountant to check whether they are paying the correct amount.”

“Unfortunately, these figures suggest that anyone receiving these sorts of benefits from employers would do well to double check their code.”