HMRC are set to take tax debts from high earners’ pay packets, under new powers that come into force later this week. This measure was discussed in the 2013 budget and implemented through secondary legislation. It means that HMRC will be able to collect up to £17,000 a year of tax debts directly from pay packets, which is a significant increase from the current limit of £3,000.
The change is expected to raise £115m in the 2015-16 tax year and has been overshadowed by new HMRC powers to recover debts directly from bank accounts. Despite receiving intense criticism, HMRC continues to defend its crackdown. The matter may end up being decided by the next government, as the May general election is likely to result in a reduced Finance Bill.
It should be noted that this proposal has been introduced on a sliding scale, consequently only individuals earning more than £90,000 would face a £17,000 deduction and this will not affect those earning less than £30,000, who will still be subject to the £3,000 limit. HMRC have also issued a guarantee that it would not take more than half the salary of those concerned. This new measure has caused less controversy than the plans to deduct the money straight from bank accounts, as it spreads the payments over the year via a PAYE coding notice.
Experience would suggest that once HMRC start interfering with your PAYE code number it can easily get confusing therefore those affected should seek advice and also take care to ensure it is removed from the code for the following year.
For advice on this, or any other tax issues, contact Jane Parry firstname.lastname@example.org or any member of the tax team.
HMRC has started the 2013/14 reconciliation process for individuals who are in employment or have a pension. They compare the tax paid with the tax which they calculate is due, according to the information on HMRC’s records. The process will continue until mid-September 2014. Where there is an under or overpayment taxpayers are issued with a tax calculation form P800. It is very important to check the calculation.
Taxpayers who complete tax returns are unlikely to be affected, if they do receive a P800 they should let their accountant know immediately.
If you have 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 you have paid too little tax, in most cases, the underpayment will be collected automatically through the 2015/16 tax code. Where this is not possible or it would cause real hardship write to HMRC and they will let you know what options are available to pay back the tax.
However, you should take care.
HMRC may have decided that you are a winner or a loser but you need to check the P800 to make sure that it is correct.
HMRC is not always right!
For many individuals in the same job or pension, year after year, PAYE does collect the right amount of tax. For people with changed circumstances the tax deducted will almost certainly be incorrect.
Take care if:
- You have changed jobs
- Received or had changes to benefits in kind such as a company car, medical insurance etc.
- Have just started work or been out of work for a period during the year
- Have retired in the year and started to take a pension or have started to receive State Pension whether you have retired or not
The calculations do not take into account investment income such as bank and building society interest or dividends. You may be entitled to tax back or need to pay higher rate tax on investment income.
Finally P800 calculations do not deal with high income child benefit charges. If you think you owe tax to HMRC in respect of your child benefit you should have completed a tax return!
If in doubt speak to us.
Cathryn Higham – Personal Tax Adviser