Top 5 Problems With PAYE Income Tax

The majority of taxpayers in this country pay their tax via the Pay As You Earn, or PAYE system. This is a simple means by which payments can be made to HM Revenue and Customs, with little or no action on the part of the individual. Bearing in mind the number of people whose tax affairs fall under the auspices of the PAYE scheme, and the number of years for which it has been operating, one could be forgiven for expecting it to go smoothly almost all of the time. The reality, however, is that the system is riven by problems – a fact to which many taxpayers can testify.

These are amongst the most serious and frequently cited problems with the PAYE tax system.

1. Incorrect Tax Codes

The correct operation of the PAYE system relies in great part on the tax codes allocated to every relevant taxpayer. Your tax code ultimately determines how much tax you will pay. The accuracy of your tax code depends on your tax office being supplied with accurate information. It also depends, of course on the competence of your tax office.

If you have a significant change of circumstances – for example, if you turn 65 or 75 and therefore qualify for age-related relief – then your tax code will need to be changed. The tax office may or may not do so automatically.

2. Emergency Tax

When you start a new job, particularly if it is your first, you are likely to be placed on an ‘emergency tax code’. This is used by HMRC until they have enough information to determine what your tax code should actually be. Generally, this will result in you paying too much tax. You should inform the tax office of your new arrangements as soon as possible. You may also be entitled to a rebate, for which you may have to apply manually.

3. No P45

When you leave a job your employer should give you a P45, which you will need to pass on to your next employer. If you do not have a copy of this form, all your details will need to be resubmitted to the tax office. This can take a long time, and will again result in you being taxed at the emergency rate in the interim. You should always make sure that your employer gives you a P45 when you leave a job.

4. Benefits in Kind

Many employees receive some kind of benefit in kind from their employer. Amongst the most common such benefits are company cars. These will not be included on your pay slip, and will therefore not be taxed through the PAYE system. However, many benefits in kind are still taxable. You must therefore list any such benefits on an annual self assessment form.

5. HM Revenue and Customs Mistakes

Sadly, HMRC make more mistakes than they should. This seems only to be getting worse, with many tax offices chronically understaffed. A significant number of PAYE errors are simple mistakes on the part of HMRC. In these cases you should make a complaint to your local tax office, first by telephone and then in writing. They will generally rectify problems quickly, but you may find that you wait some months – particularly if you are owed a rebate.

PAYE is an important part of many Britons’ day-to-day lives. You should always ensure that you are cognizant of your tax affairs, and that you could spot a mistake or problem as soon as one arose.