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Understanding HMRC’s plans to address tax under/over payments during the tax year.

On 10 April HMRC published a policy paper ‘Helping customers pay the right amount of tax on time’. The paper aims to address tax under/over payments during a tax year which historically are sorted out after that year has ended.

To illustrate the issue, HMRC estimates that during the tax year:

  • around 8m customers underpay or overpay their tax each year
  • two-thirds of these customers (5.5m) overpay tax, of which just over 50% are the lowest paid, earning under £15,000 a year
  • the current system can take up to two years for an individual’s tax account to be balanced after an under-payment has occurred.

HMRC’s answer to the problems is to make system improvements which will get the code right during the tax year. The plan will be that taxpayers will pay the right tax at the right time and avoid people paying too much tax during the year or getting unexpected tax bills at the end of the year. The paper states that this is part of their overall ‘modernisation plans’ which effectively means the ‘making tax digital’ regime.

How does this affect employers?

This will inevitably mean more coding notices being issued but using the batch system as now. As the employer is legally responsible for completing all PAYE tasks the increase will add to the existing payroll burden. RTI will be unaffected but HMRC is stressing the need to submit accurate data on time.

Article from ACCA In Practice