Wed, 2 Feb 2011

HMRC in clergy pay debacle

Some 7,500 members of the clergy have been issued incorrect tax codes by HM Revenue & Customs, putting thousands at risk of overtaxation in their first pay cheques of 2011.

The issue arose following the cutbacks to the Church of England’s dedicated Revenue unit in September 2010, sparking concerns among church employees that the department is failing to process the clergy’s complex payroll. However, Payroll World investigations have revealed the Revenue is denying both abolishing the clergy team housed at Bradford and being responsible for the blunder.

The Church of England’s in-house payroll team identified the error after receiving thousands of new tax codes from HMRC between Christmas and New Year. The mistake lies in a particular benefit available to full-time members of the clergy – the HLC Allowance – which is paid on a tax-free rate offset by working costs. This is deducted from the stipendiary pay received by some 9,000 Church of England employees that are declared via self-assessment. However, P11D information submitted by the Church to the Revenue was incorrectly processed and led to new tax codes, even though they already contained the allowance.

Shane Waddle, Church of England payroll services manager, explained: ‘HMRC has applied the full amount of the benefit against the tax code, even though the tax code may already include the service benefit,’ he said. ‘The average amount that we pay tax-free is about £3,000 – that’s a lot to drop off your personal allowance.’

Waddle said the issue has arisen because of a change in operations at HMRC, which saw all but the most senior clergy’s pay transferred to the central contact centre. ‘Before September, clerics could call Bradford and people were quite aware of what happened with clergy taxation,’ said Waddle. ‘We’re struggling to become accustomed to working with HMRC mainstream.’

An HMRC spokeswoman confirmed the Revenue was working with the Church to rectify the mistake, but she denied the department was at fault and that the unit at Bradford had closed. Unable to discuss the case in detail due to ‘taxpayer confidentiality’, she said: ‘Nothing that has come up is from our side’, and that, ‘Nothing has changed at Bradford’.

The department has assigned an inspector to address the problem and set up a team to review all records that may contain incorrect codes.