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bigduckontax
bigduckontax, Accountant
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Several of our employees overpaid tax previous year of

Customer Question

Several of our employees overpaid tax for a previous year of £74.80, I am not sure why as I used payroll software. However, this is correct on checking their pay and tax for that year.
Their tax codes for this Year End 2016 have bee reduced from 1060L to 1022L. Is this correct ?
Their personal allowance £10600 has been reduced by £374, HMRC letter to employees states this is to collect the underpayment (£374.00 at 20% is £74.80).
I thought the personal allowance would be reduced £10600 - £75 = £10526 and a tax code of 1052L
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I'm Keith and happy to help you with your question.
This sounds like total confusion here. You say that some of your employees overpaid tax in a previoos year. The over payments will be refunded direct by HMRC on the filing of the employer's end of the year return.
Regrettably, I cannot tell you why their tax codes have been reduced. With respect it is a personal matter between the individual and HMRC. All the employer must do is operate the code issued by HMRC. Individuals should challenge their codes direct with HMRC. A reduction from 1060L to 1022L may well be to recover underpaid tax in earlier years.
Tax codes for recovery always appear odd as to recover 75K a notional GBP 374 is needed [374 / 0.2 = 74.8].
I do hope I have been able to shed some light on the situation.
Customer: replied 1 year ago.

I meant underpaid not overpaid, sorry!

Expert:  bigduckontax replied 1 year ago.
Well, that is pretty obvious; HMRC are recovering under paid taxes for prior years. Up to 3K can be recovered in this manner. It spreads the load over a year rather than the individual having to stump up a lump sum demand.

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