Written by Paul Chappell
Published on September 28, 2009

Many people are paying too much tax based on incorrect tax codes produced by HMRC. The majority of taxpayers in this country pay their tax via the Pay As You Earn (PAYE) system.  This is a simple means by which payments can be made to HMRC, with little or no action on the part of the individual.

Bearing in mind the number of people whose tax affairs fall under the auspices of the PAYE system and the number of years for which it has been operating, one could be forgiven for expecting it to go smoothly.  The reality, however, is that the system is fraught by problems.

These problems appear to have increased following the amalgamation by HMRC of numerous computer systems into the new PAYE service.

It is widely thought that one in five workers and pensioners are paying either too much or too little tax because their tax codes are wrong.  Taxpayers are overpaying tax by some £500m per year.  It is important, therefore, you check your tax code to ensure it is correct.

The following are common issues that have arisen.

  1. Fuel benefit in respect of a company van of £1,000 coded out.  The correct amount is £500.
  2. HMRC notified of the change in a taxable benefit, such as a company car, but the code has not been amended or has been amended incorrectly.
  3. Medical benefit incorrectly coded out.
  4. BR code notified for no apparent reason.  Tax therefore deducted at Basic Rate with no personal allowances given.
  5. Complex tax cases, multiple income sources, incorrectly processed, resulting in incorrect code numbers.

Most people automatically assume their code numbers are correct.  This is not our experience.  It is important that you check the accuracy of your codes as you may be due tax back from HMRC or more worryingly have an underpayment at the end of the tax year.