Partner Article

More wrong tax codes from HMRC

Employee tax codes are reduced each year to collect tax on P11D benefits reported by employers, but it appears that adjustments incorporated before RTI have been disappearing from codes for a worryingly large number of employees. HMRC has told employers to simply disregard the new codes without explaining how to identify them. So how has this happened?

Some employers have been querying new codes that have wrongly removed the P11D benefit figures, but HMRC initially concluded that employers had done something wrong and that the RTI system was correct, whereas employers assumed RTI was to blame. The truth lies somewhere in between.

Large employers (250+ payroll names) had to submit an ‘Employer Alignment Submission’ (EAS) before sending RTI data. This verified the employee data on both the employer’s and HMRC’s systems. Some employers didn’t include every employee record on the first EAS, and this should have worked if the EAS had included a flag to mark partial submissions. But some employers didn’t know they had to set the flag. When those employees in the second EAS were missing from the first, the HMRC computers assumed they’d left and cancelled their record – along with the record of P11D benefits – and sent out the wrong tax code. The second EAS was simply ignored by HMRC.

Smaller employers were expected to use their first Full Payment Submission (FPS) under RTI to act as their data verification run, and HMRC expected this would include all current employees – which was a mistake. The FPS includes details of current payments, so anyone who was not paid with the first RTI submission was not in the FPS – so those who weren’t paid in the first RTI payroll run were automatically treated as leavers by HMRC, and P11D benefits were deleted from their codes too.

In summary, any employees missing from the first RTI report will have been ‘terminated’ as at 5 April 2013. But when reinstated, they’ll be treated as new employees with no history, so any benefits in their ‘old’ job will be missed from the code for the ‘new’ (same) job. Every P11D employee with taxable benefits not included in the employer’s first RTI run should get an incorrect tax code – hence the instruction to employers not to operate the new codes.

The big question is why were the first EAS/FPS accepted as a complete employee listing when HMRC is aware that many employers have weekly and monthly staff on the same payroll reference, so not all would be included?

This was posted in Bdaily's Members' News section by George Bull .