Following our first end of year submission under the new Real Time Information (“RTI”) system, my employees have started complaining that they are being taxed too much. After a review of all of their PAYE codes, we have noticed that some are missing benefits in kind information and some have received erroneous BR and D0 codes. We have been using these codes since the beginning of the new tax year, what has happened?
This is a common problem and HMRC have acknowledged that there have been issues with the end of year filings under RTI which could see tens of thousands of people issued with incorrect coding notices. Estimates have suggested that up to 40,000 people may have been given the wrong code number after difficulties in two areas. One company in Newcastle have reported that they have already received 500 incorrect codes out of 2,000 employees.
The first relates to the Employer Alignment Submission (“EAS”) which HMRC uses to match its records to a company’s own payroll records for those businesses with more than 250 employees. While submission of a partial EAS is allowed, when some companies have entered their first Full Payment Submission (“FPS”), any employee who is not included on that submission has been treated as having left the company on 5 April 2013.
As a result, their record has been closed along with the history of any benefits in kind. When that same employee appears on any subsequent FPS, they are treated as a new starter and given a tax code which does not reflect any benefits in kind they may be receiving.
Smaller companies who are not expected to provide an EAS, but have still run into problems when they have employees on the payroll who have not been included on the first payments made via RTI.
Umbrella companies or those companies with employees on ‘zero hours’ contracts with employees who may not be paid every week/month are most likely to be affected by this error
The second issue is where employees have been receiving ‘phantom’ tax codes which saw employees being issued with BR or D0 codes because a mismatch of information on the RTI system meant it were assumed they had other employments. These individuals faced paying higher tax bills than expected, in some cases on an employment which they may have left years ago. Employees on incorrect D0 codes could overpay income tax by up to as much as £835 per month as a result of using this ‘phantom’ code.
Unfortunately, HMRC are relying on employers and employees to identify these mistakes and have issued guidance that any employers who are receiving incorrect codes should ignore these and continue to use any previous, correct, coding notices they hold.
If there are employees who have all benefits removed or one of the ‘phantom’ codes employers have been advised to contact HMRC directly to correct this.