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HMRC using RTI data to amend tax codes – at last

By Ian Holloway, head of legislation and compliance at Cintra HR & Payroll Services

If you were vigilant, hidden away at the back of Agent Update 56 (page 16) is a new HMRC initiative called PAYE Refresh, going live from tax year 2017-18. This is all part of HMRC’s Making Tax Digital programme and was outlined in their 2016 consultation document Better use of Information (2.10 to 2.20), i.e. making better use of information regardless of who holds the data.

The consultation document said that it is estimated over six million taxpayers do not pay the correct tax through the PAYE system. In recognition, and as a first step, HMRC intended to make “better use” of the taxable pay income it already holds to update tax codes more frequently – e.g. the information that has already been flowing to HMRC about different types of taxable income via RTI for years! A responses document at the end of January 2017 confirms that April 2017 will see the start of HMRC using the data that they have had for years to adjust tax codes. A Policy Paper on 10 April 2017 confirms these changes to the PAYE system.

The good news

This is good news for the estimated six million taxpayers who have under or overpayments. Tax codes will be adjusted up or down to ensure that the right amount of tax is collected in more real time via PAYE Refresh.

Refresh is a totally new concept for the PAYE system which, up until now, has only ever been a way of estimating an individual’s tax liability over the course of the tax year.

The bad news

Adjusting tax codes will mean more notifications to the individual (via the P2 or their Personal Tax Account). At the same time, similar notifications will have to come to the employer via the P6. More tax codes means more frequent tax code changes and more data entry for employers. Although, quite correctly, HMRC recognises that many P6s “flow automatically into their computer systems”, although there are many employers who do not have these automatic flows.

However, HMRC have reassured employers that tax codes via the P6 will not be issued in batches more frequent than they are used to at the moment. In discussions, HMRC have said they will not change an employee’s tax code more than once a month.

I think it is important to look at HMRC’s comment about automatic flows of tax codes into the payroll system. By this statement, they have confirmed they understand that many, many employers are unable to intercept tax codes before they reach the payroll system because of their better use of technology. So, when HMRC turn around and say we should be looking at individual tax codes (and Student Loan notices), it will be easy to point to their January 2017 document and say this is not possible because of automation.

The query

Both the consultation and responses documents talk about PAYE Refresh being a mechanism to ensure the individual pays “the right amount of tax and National Insurance contributions for the tax year”. I am not quite sure how more frequent changes to a tax code will help the individual pay the correct National Insurance.

Maybe I am missing something obvious here.

The future

From April 2018, HMRC also plans to use bank and building society interest (BBSI), specifically capturing for tax purposes the 5% of individuals with savings whose interest exceeds the Personal Savings Allowance.

HMRC has large data-powering powers courtesy of Schedule 23 in Finance Act 2011. You may want to take a look at this Schedule to see that, essentially, anyone that holds data that may be taxable could be required to provide this data to HMRC in the future.

Posted on 19th April 2017 by Jerome Smail



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