PAYE 'Errors'

Newsletter issue - October 2010.

You have no doubt heard on the news about the PAYE 'errors' affecting millions of people this autumn. The underlying problem is not new – the PAYE system does not cope well with taxpayers who have income from more than one employment or pension during the year. Under or overpayments of tax arise, and when the Taxman gets round to reconciling the tax and allowances due on the two or more employments, he issues a tax computation (form P800) to the taxpayer.

Unfortunately the Taxman did not do his reconciliations for 2008/09 (and in many circumstances for earlier years), so there are now two years' worth of forms P800 (2008/09 and 2009/10) on their way to up to 4.7 million taxpayers.

It is going to take some weeks to issue all of those forms, so you may not receive a letter immediately, if at all. If you normally complete a self-assessment tax return form you should not receive a form P800 as all of your tax liabilities are reconciled on the self-assessment form.

If you do receive a form P800, don't panic. In most cases it will show a repayment of tax, which will be sent to you within a few weeks. You do not have to supply any further details to the Taxman to get this repayment. To avoid fraudulent scams, PLEASE DO NOT respond to emails or telephone calls asking for your bank details in connection with a tax repayment.

If the form P800 shows that you owe some tax, you won't have to pay anything immediately. Indeed, if you owe less than £300 in total for 2008/09 and 2009/10 that tax will be written off and you won't have anything to pay. If the tax due is less than £2,000, it will be collected through your 2011/12 PAYE, so the amount will be deducted from your monthly salary in the year to 5 April 2012. If the tax due is more than £2,000 the Tax Office will issue a separate payment request, and ask for payments to be made in 2011. However, if you will have difficulty in paying the amount due, whether this is more or less than £2,000, you can ask to pay over an extended period of up to three years.

There is a possibility that you could avoid paying the tax due, where you can prove that the Taxman ignored information relating to your tax affairs for more than 12 months after the end of the tax year. This procedure is called Extra Statutory Concession A19, and you need to make a claim for this to apply.

We can help you check the P800 tax calculation, and to submit any claims needed.