HMRC has started the 2015/16 PAYE reconciliations

Taxpayers who have paid too much or too little will be receiving P800 tax calculations – make sure you check them carefully 

HMRC started the 2015/16 end-of-year reconciliation process for individuals in PAYE on 10 June 2016. The process will continue until the end of November 2016. It is anticipated that around six million calculations will be issued. The timetable and numbers are similar to previous years. It is disappointing that the information available to HMRC through RTI has not yet resulted in more accurate tax codes and fewer under- and overpayments.  

The reconciliation process compares the tax paid with the tax which is due, according to the information on HMRC’s records (the NPS PAYE system for individuals). Taxpayers who have not paid the right amount of tax through PAYE can expect to receive a P800 tax calculation showing that they have paid too much or too little tax during 2015/16.  

Agents may wish to tell their PAYE-only clients that they might get a P800 and should pass it on to the agent. Clients in self assessment are unlikely to be affected. 

Paying the tax
If your client has paid too much tax, in most cases HMRC will send a cheque for the overpayment within 14 days of issuing the P800 tax calculation. 

If your client has paid too little tax, in most cases the underpayment will be collected automatically through the 2017/18 tax code. Where this is not possible HMRC will write to advise what options are available to pay back the tax. HMRC does not seek to collect P800 underpayments of less than £50. Some clients may wish to make a payment arrangement with HMRC to avoid collection through the 2017/18 code. 

If an underpayment cannot be collected through the 2017/18 tax code and voluntary payment is not made HMRC will issue a self assessment tax return to collect the underpayment (usually about 16 weeks after the original calculation). This is currently HMRC’s only option to enforce the underpayment – the Simple Assessment power in the Finance Bill currently going through Parliament is expected to give HMRC the option of making an assessment, but not until 2017. 

Checking the P800
It is very important to check the P800. Below we explain why tax over- or underpayments may arise and what to do in the event of errors or problems. 

The guidance on GOV.UK is minimal, although it mentions that income tax on employee benefits is one reason why tax has been under- or overpaid. HMRC generally holds back calculations where a P11D is expected until after the P11D deadline, 6 July, but some calculations issued before this date may incorrectly omit P11D employee benefits.  

There is some very useful guidance produced by the Low Incomes Tax Reform Group to assist with checking P800 computations and the possible grounds for challenging them – this is aimed at taxpayers but may also be of interest to advisers.  

Why the reconciliations happen
PAYE reconciliations are a normal part of PAYE processing. PAYE is a means of collecting tax, not of assessing it, and it cannot collect the right amount of tax during the tax year in all cases. HMRC runs an automatic reconciliation after the tax year-end to check whether the right amount of tax has been paid or if adjustments are needed.  

In practice PAYE does collect the right amount for many people. According to HMRC, around 85% will have paid the right amount and will not receive any contact from HMRC.

There are a number of reasons why the tax deducted under PAYE will not be spot-on and the taxpayer will have an under- or overpayment. For example:  

  • The PAYE code is not up to date, does not contain all relevant details, or is otherwise incorrect.

  • The code contains estimates of items such as other income, benefits-in-kind, pension contributions or gift aid donations, but the actual figures are different from the estimates.

  • The taxpayer has several jobs or pensions taxed under PAYE or has moved jobs frequently and had gaps between periods of work.

  • The taxpayer has started drawing a state pension during the year or has had periods claiming other taxable state benefits such as Job Seekers Allowance, contributions based Employment and Support Allowance or Bereavement Benefit.

  • The code contains incorrect figures for underpaid tax from a previous year.

  • The employer has made an error in operating PAYE.

  • HMRC has made an error.

What to do if you or your client gets a P800
It is very important to check the P800 calculation. The under- or overpayment might be wrong.

Errors or omissions should be reported to HMRC. This applies even if there is an overpayment, as there is an obligation to point out errors.

  • We have received three today all of which are inherently incorrect.

    - Taxpayer advised of a refund due of £1,500, based on previous years return. Refund was in respect of taxed interest from a portfolio of investments. The income for 2015/16 is significantly lower.

    - Taxpayer advised of repayment based on Pension income only. Tax Return will include his self employed earnings which are continuing.

    - Tax payer advised of a repayment based on salaried earnings only. He is also self-employed and these earnings are yet to be reported.

    Wonder how many of the 6 million calculations will be incorrect.

  • Bigbean, HMRC applies a tolerance when reconciling PAYE records and will not issue a calculation if the tolerance applies. HMRC’s PAYE manual 93075 gives the detail of how the tolerance operates. The amount of the tolerance is information withheld from the manual but we understand that the current amount is £50.

  • Another problem which can occur is on R40 cases. For the past two years I have had a P800 issued for a client showing a tax underpayment on gift aid. Her PAYE income from pensions is less than the personal allowance but she has at least £15,000 of interest and dividend income, the tax on which far exceeds the tax due on gift aid. She is in a repayment, not a payment, position.This is a case where the information used to complete the P800 is incomplete and gives a misleading position. I have tried to stop the P800 being issued but you can't. Incidentally the calculation sent to me has no address or telephone number to contact. Thank goodness for the agent line!

  • I suspect that Keith's problem may be the tip of a large iceberg. We have had problems with HMRC both in the operation of the RTI system where they cannot seem to allocate payments correctly and where they misinterpret the information they have and then misinform other .Gov departments such as the Tax Credit people who then snatch back credits which are due on the basis of wrong information supplied by the RTI people. Odd comments by HMRC staff suggest that this is a not uncommon problem as there is a long backlog to get such problems sorted. Is anyone surprised?

  • 3 of our 500 employees have already received large tax bills for underpaid tax in 2015-16, which is incorrect. These 3 staff have only 1 employment and the tax shown on their P800 is about half of what we have deducted and submitted to HMRC on time each month under RTI reporting & monthly payment by BACS. As the FD I tired to find out the cause of the problem by phone, but typical unhelpful nothing can be done. Was advised that the 3 staff members must write personally with a copy of their P60! I have faxed all 3 cases to HMRC on Friday 8 July and will see how long it takes them to respond. These 3 are all factory workers earning in the region of £18 to 20,000 p.a. and they are scared to death to receive a tax notification that they owe in the region of £600 to £1000 each. When will HMRC set up some kind of checking system before just sending our incorrect calculations?? Does anyone else have similar cases so far please?