This guest post is by TaxHelp for Older People, a national charity offering free tax advice to older people on incomes below £17,000 a year. The Helpline number is 0845 601 3321.
This is the first year that HMRC have been able to issue pay as you earn (PAYE) customers with timely end of year reconciliations of tax due and tax actually deducted by employers and pension providers.
These annual reconciliations (form P800) form an important part of the PAYE operation. The (mainly) computerised process involves the taxpayer, the employer/pension provider and HMRC. Over the last few years this has been a painful process for some, but we hope that as the system settles down into its proper routine the problems will start to diminish.
Changes during the year can sometimes be difficult to deal with on time, leading to the wrong tax being deducted. The annual reconciliation will inform the taxpayer what information HMRC holds and will tally up the figures, indicating whether tax is owed or if a refund is due.
If you pay your tax via the self assessment process you should not receive an annual reconciliation calculation. If you do, then something is wrong and you need to contact HMRC.
We are probably all familiar with the term ‘rubbish in rubbish out’ and it’s definitely a phrase worth keeping in mind if you receive a P800. There are many reasons why the collection of tax can go wrong and incorrect data is very high on the list.
The coding system that collects the tax is another major player. It can easily become quite complicated and even a slight time delay has the potential to disrupt your tax. Add to this multiple incomes that can start at different times of the year as you reach retirement and you begin to appreciate the problems.
So what do you do?
Check everything. Question anything that doesn’t make sense! Even if you are due a refund.
- Do you agree with the total income figure? Check this against your end of year certificates for employers and pension providers (P60s), certificate 975s from banks and building societies and dividend tax vouchers.
- Have you been allocated the correct personal allowance? Should you have the married couples’ allowance? If yes, has it been restricted to £3,648 (2011/12)? Is your income over £24,000? Yes? are you 65 or over? Yes? Then is your age related allowance restricted? Are you entitled to the blind persons’ allowance?
- Look out for adjustments. These often relate to underpayments of tax from earlier years. If there is one, do you agree that you had an underpayment? If yes have you enquired why the underpayment occurred? It might be HMRC or employer error and you may be able to appeal against it.
Even if you agree with the figures and an underpayment is due, do not automatically accept that this should come from you. It might be that the error was caused by your employer or pension provider, in which case you are entitled to ask HMRC to investigate or, if earlier years are involved it may have been caused by an HMRC error.
We will cover the details of this and other rights you have when it comes to underpayments in next month’s tax tips article.