New PAYE “Real Time” System Might Create Future Tax Discrepancies

Earlier this month, the HMRC rolled out a huge change to the PAYE system called “Real Time Information.” Its goal is to maintain up-to-date data, giving government departments a more accurate picture of taxpayer earnings. However, employers are reporting problems with the new system and accountants across the UK are warning that those problems could create future tax discrepancies. What has changed and how could it affect your taxes?

What’s Changed?

Employers have always deducted tax from each employee’s paycheck. However, the employer was only required to submit a file to the HMRC detailing the employee’s wages once a year. The new real time system means employers submit data each time an employee is paid.

The volume of files being submitted monthly for approximately 44 million PAYE workers seems to be overloading the system. Problems have occurred when employers have altered or corrected an employee’s record. Instead of correcting the employee’s file, the HMRC’s system is creating a new phantom employee and switching the earnings to the new record. As a result, employees are now being assigned tax codes that are incorrect, including codes that indicate they have lost their jobs.

What Does This Mean for You?

The HMRC has responded by saying they do not have a systematic problem. They admit, however, that errors could number into the thousands. Obviously, this is an issue they are working vigorously to correct. However, the exact implications are not yet known. That means it would be wise to pay extra attention to your taxes. You may need to seek a refund or pay additional tax if your PAYE was calculated incorrectly.

Tax codes can be found on the PAYE coding notices that taxpayers receive prior to each tax year. The codes are also found on your P45 and sometimes included on payslips. The code will be comprised of a few digits followed by letters. The digits are an abbreviated version of the pounds you are allowed to earn before tax applies. The letters represent variables such as employment status and PAYE rate.

If you discover that your tax code is incorrect, it’s likely you will be owed a refund. Taxback has a team of tax professionals experienced in getting your money back from the HMRC. Contact us if you find your PAYE tax has been calculated incorrectly.

 

Photo by Kelly Sikkema on Unsplash

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