PAYE coding mistakes hit savers, claims LITRG
30 Aug 2019
The Low Incomes Tax Reform Group (LITRG) is warning taxpayers to check the accuracy of savings income figures shown in their PAYE Notices of Coding and tax calculations (P800 forms) to avoid overpaying tax
30 Aug 2019
In some instances, LITRG says that HMRC has been over-estimating the amount of tax due on savings income or using out-of-date figures, and as a result has issued taxpayers with incorrect PAYE tax codes. This means that more tax would be deducted at source than is owed to the taxman for the current tax year 2018-19.
Around one million individuals are estimated to pay tax on their savings income due to the personal savings allowance (PSA) but these are likely to be additional rate taxpayers or individuals with higher than average savings. Most people are unlikely to fall into the PSA system as interest rates are so low. Based on an interest rate of 2%, a basic rate taxpayer would need to have around £50,000 of non-ISA savings before they had any tax to pay on their interest. The PSA came into effect in 2017.
HMRC issues PAYE employees and pensioners with tax codes that contain estimates for other sources of income. This is often done so that the taxpayer does not need to complete a tax return; instead, any tax due on other sources of income is collected through PAYE.
An HMRC spokesperson told Accountancy Daily: ‘We always use the very latest information to prepare tax codes, and we only calculate someone’s tax when we have received all the information we are expecting from third parties. This can include pay and tax from employers, details of benefits they’ve provided, or bank and building society interest. This ensures we use the latest data.’
HMRC also stressed that taxpayers should use their personal tax accounts (PTAs) on gov.uk to check that they are paying the correct tax, and can update the tax authorities at any time if their circumstances change, for example, if they have closed savings accounts or variations in investment income.
LITRG claimed that some taxpayers were still paying too much tax due to incorrect coding and they had received complaints to its helplines asking for assistance.
Kelly Sizer, senior technical manager at LITRG, said: ‘HMRC receive information from banks and other financial institutions after the end of the tax year, but this might not always be entirely accurate or complete. It is the taxpayer’s responsibility to advise HMRC of accurate figures. People might pay too much tax where their savings income has gone down as compared to earlier years. For example, pensioners who are supplementing their income with savings may be earning less interest year on year as a result.'
LITRG is urging taxpayers to carefully check their Notices of Coding and any tax calculations (P800 forms) they receive from HMRC to make sure they are paying the correct amount of tax.
They may be due a refund and can currently claim refunds for any tax year from 2015/16 onwards. If they are due to pay more tax, it is best to have this corrected now.
Changes to taxation on savings income were introduced in Budget 2016 by former coalition Chancellor George Osborne, giving taxpayers a tax-free savings allowance of £1,000 for basic rate and £500 for higher rate taxpayers from April 2017.
Further reading: Personal savings allowance: top slicing dilemma
Report by Sara White