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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I am trying to research why HMRC is trying to hide behind

Resolved Question:

I am trying to research why HMRC is trying to hide behind the SA threshold when they so completely incorrectly taxed me by applying a BR code when I earn 110k.
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi. Can you explain what you mean by " HMRC is trying to hide behind the SA threshold" please.
Customer: replied 1 year ago.
It seems that the PAYE system has some obligation to correctly deduct tax. HMRC continues to maintain that since I am a SA person that they expect me to make tax provisions and pay on account - terminology that is completely out of kilter with PAYE.
Expert:  TonyTax replied 1 year ago.
Thanks. Leave this with me while I draft my answer.
Expert:  TonyTax replied 1 year ago.
The PAYE system is operated by employers on a day to day basis, not HMRC. When an employer takes on a new employee, they either use the tax code shown on the P45 given to them by the new employee or an "emergency" code while they get tax coding instructions from HMRC. Ultimately, it is the responsibility of the taxpayer to ensure that their tax code is correct and to have it changed if necessary. Many employees get bonuses towards the end of a tax year and so it isn't clear earlier in the tax year that the employee's earnings may breach the £100,000 level. Therefore, if the employee has been on a tax code of 1000L for the whole tax year and their March bonus takes them over £100,000 for the year, they will probably be underpaid. One of the criteria requiring an individual to complete a self-assessment tax return is if their income is over £100,000 per annum. If there is an underpayment of £1,000 or more, the SA system generates payments on account for the next tax year. That's the way it works. If the taxpayer thinks that they won't owe tax at the end of the next tax year, they can apply for the payments on account to be reduced. Sometimes, the PAYE year end Real Time Information system does work to see that a taxpayer has earned over £100,000 very early and the HMRC computer will change the tax code for the new tax year before too much of an underpayment has accrued for that tax year. However, there are other circumstances which need to be taken into account in determining whether a taxpayer loses any of their personal tax allowance or not such as pension contributions or gift aid donations so it isn't always clear from the tax year end pay and tax details what personal allowance is due. for the year just ended or the next one. Take a look here for information on payments on account and here for information on adjusted net income. Every year, I deal with hundreds of tax returns for taxpayers who are on PAYE but need to complete a tax return in any event because they have other sources of income or need to make claims for tax reliefs. Some will owe tax, some will be overpaid. The PAYE system isn't perfect, nor is HMRC but the PAYE system can get a PAYE taxpayer's tax deductions spot on. That relies on HMRC being given accurate information. I'm not popular for saying it but it is my experience that most PAYE underpayments occur because the taxpayer hasn't taken an interest in their tax code and has assumed that it is always correct, as opposed to mistakes by HMRC. However, sometimes HMRC doesn't act on information provided to it in time and the taxpayer has recourse to have their case reviewed. Read the notes on ESC A19 here. ESC A19 won't help with payments on account I'm afraid. They are either due or they aren't. They can be reduced to a more appropriate level all the way to £0 if the taxpayer thinks that the circumstances which gave rise to a tax underpayment for the previous year have been rectified for the next tax year. I hope this helps but let me know if you have any further questions.
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