New trigger to increase the accuracy of PAYE codes being trialled by HMRC

George Hay Chartered Accountants

HM Revenue & Customs (HMRC) is trialling a new trigger, which is intended to improve the accuracy of employees’ PAYE tax codes.

According to HMRC, as many as half a million tax codes being used by employers across the UK could be incorrect, leading to employees either overpaying or underpaying tax.

To address the problem, HMRC is making changes to dynamic coding, which was first introduced in July 2017.

Dynamic coding is characterised by a set of ‘triggers’ which, when fulfilled, can lead to a new code being issued.

The aim of dynamic coding is to make use of the additional information HMRC receives from employees and employers, in order to recalculate pay estimates during the course of the tax year.

Recalculations can prompt HMRC to amend codes to achieve more accurate tax deductions and hence the number of P800 computations produced at the end of each tax year should be reduced.

Current triggers

Until April 2019, trigger events included the following:

  • Full Payment Submission (FPS) with a start date for an employee or pensioner: a recalculation is based on the number of days to the end of the tax year and the first reported pay figure.
  • FPS with a leave date: based on the final FPS year to date figures.
  • Benefit in kind reported by the employee or employer.
  • Allowance or relief reported by the taxpayer.

What’s new?

Now, HMRC is adding mismatches between its records and those of employers to the list of events that can trigger a recalculation.

This involves comparing the tax code reported for an employee on the FPS with the code HMRC believes it has issued, as shown on the National Insurance and PAYE Service (NPS).

Where they don’t appear to match, and the employer hasn’t implemented the code issued by HMRC more than 60 days ago, the HMRC computer will reissue the PAYE code to the employer.

When comparing tax codes, the HMRC computer doesn’t take into account the suffix (L, T, M etc) or whether the code is cumulative or non-cumulative, i.e. WK1/MTH1.

If the code hasn’t been used by the employer, the computer will recalculate to see if the HMRC held code is still appropriate. If it is, the same code will be reissued and if not, HMRC will issue a new PAYE code to both employee and employer.

HMRC has so far issued new codes to the first 30,000 mismatches identified and expects the volume to increase this month.

As part of the initiative, HMRC is also placing a renewed emphasis on ensuring that employers complete new starter checklists properly and will be visiting the 100 worst offending employers when it comes to inadequate completion.

Link: HMRC trials new PAYE code trigger