Tax: Tip of the week - 80% of tax codes are wrong – fact or myth?

If you’re a company director/employee, you will probably have received a notice of coding from the Taxman recently.  And if the press reports are to be believed, there’s only a one-in-five chance that it will be correct. Should you be worried?

Common faults
There are dozens of reasons why a code may be wrong, but we’ve produced a list below of the most common causes; do any of these ring a bell?

You start or stop having the use of a company car, or you change cars.
You start or stop receiving another benefit-in-kind, e.g. medical insurance, low interest company loan, car fuel etc.
You start or stop paying premiums into a personal pension plan, or change the amount you are paying.
You start to receive a state or other pension. The level of your investment income changes significantly, e.g. because of an inheritance.
Tip - Don’t wait until after the event. As soon as you know, for instance, that you’ll be increasing your pension premiums, write to the Taxman and tell him. He’s notoriously slow at dealing with matters, so the more warning you give him the better.

Code too high – a final thought
If your code is too high, you won’t pay enough PAYE tax. This will only be corrected when you complete your SATR for the year and pay (by the following January 31st) the tax you’ve “borrowed”.  By paying too little you’ve had the use of the Taxman’s money for up to 20 months.  Fortunately, he doesn’t consider this interest a benefit-in-kind!

Tip – Make regular code checks, even if you fill in a SATR every year, it can take an age for the Taxman to repay tax you’ve overpaid through the PAYE system.

Worse - who expects after paying your tax trough PAYE deductions all year, to have to pay a catch up amount the following 31st January.

Moral of the Story – If you are being taxed through the PAYE system it is better to pay the right tax first time, so check your tax code and notify the Taxman of any changes as soon as you know they are needed.

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