Filed under: Tax
Up to one in three taxpayers may be paying the wrong amount of tax - 'wrong' being not enough. Which could mean many are in line for a nasty HMRC shock demand for extra cash.Those most vulnerable are those with several sources of income, or multiple company benefits. How serious and widespread is the situation?
Nasty surprise?
Accountants UHY Hacker Young says the situation appears to be getting worse. Their analysis of a spread of tax codes showed that around 37% would have resulted in people paying the wrong amount of tax - or not enough, in many cases.And if HMRC attempts to claw back the money, many taxpayers won't question the amount HMRC claims it's entitled to, warns the accountancy firm. "This means they may end up paying more tax than they are supposed to, or could end up owing HMRC significant sums that will eventually be clawed back when the error is spotted."
Mistakes most frequently occur when someone has several sources of income, says Roy Maugham, Tax Partner at UHY Hacker Young. "For example income from an investment as well as a salary and benefits from their employer, or where they have received a large one-off sum such as a dividend payment.
Your fault
This year, says the company, one of their local offices saw errors for 20 different taxpayers in one week relating to employer benefits - like company cars and private health cover."Benefits and expenses like company cars and private health cover are part of standard packages for millions of private sector employees. Their tax affairs are not necessarily very complex, and in most cases they won't use an accountant to check whether they are paying the correct amount."
"Unfortunately, these figures suggest that anyone receiving these sorts of benefits from employers would do well to double check their code."
This is important because taxpayers are directly responsible for making sure their tax code is right - and HMRC is increasingly tightening up on appeals. You can check the appeals process here (known as ESC A19) if you think HMRC is wrong.
Jamie Morrison, Tax Partner at HW Fisher told AOL Money the situation was compounded by HMRC now not automatically issuing accountants with copies of tax code notices to their clients. "We no longer get to see those. That means it's more difficult to check on the correctness of the codes for the individual."
Make sure it's right
- Your tax code, often found on your pay slip or P45, is usually made up of several numbers and a letter, for example: 117L or K497
- If you multiply the number in your tax code by ten, you will get the total amount of income you can earn in a year before paying tax
- If your tax code has two letters but no number, or is the letter 'D' followed by a number, it is normally used where you have two or more sources of income and all of your allowances have been applied to the tax code and income from your main job or pension
- If you have two jobs or pensions, it is likely that all of your second income will be taxed at the basic, higher or additional rate - depending on how much you earn. This is because all of your allowances will have been used against the income from your main job or pension