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 & Customs (HMRC), 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.

If you're concerned that your tax code might be incorrect and causing you to pay the wrong amount, you can check it using our free Tax Code Explainer.

Here are 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 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. 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. You and your employer will need to complete a form P46 which your employer should submit to their tax office on your first pay day. The P46 is the form to tell the tax office about employees who do not have a P45 and can be submitted online. You must complete the form before your first payday or you will be taxed on an 'emergency tax code'.

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3. 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.

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4. Benefits in Kind

Many employees receive some Benefits 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. HMRC Mistakes

Sadly, HMRC make mistakes, 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 fully understand your tax affairs, and that you could spot a mistake or problem as soon as one arises.

The Next Step

Now that you have read through the advice above, you might want to put it into practice. Our Income Tax Calculator lets you enter your salary and get a clear breakdown of your income tax, National Insurance, and take-home pay for the 2025/26 tax year. See exactly where your money goes. Try it now →