It’s that time of year when HMRC dish out new tax codes and it seems that half the time they get them wrong. One of their most common errors is to deduct investment income or property rentals from your code when you are already making payments on account twice a year.
Left uncorrected, you will end up paying tax on this income twice, first with your payments and secondly via the PAYE system. You will then have to request a tax rebate for the overpayment, which may take a while to turn up if it is delayed for “security checks”.
You can stop them doing this by ticking a box on your tax return, but if you leave this right to the last minute, it may not be early enough to stop your tax code getting messed up. Then you will have to write to them or spend ages trying to get through on the phone.
Another common error they make is to deduct expenses reported on your P11D, even though they are not taxable. Most employers have a dispensation from HMRC allowing them to ignore expense claims when they prepare your P11D. However, a lot of small firms never bother to request these, meaning that expense claims must be reported too, even if they are just routine travelling expenses.
Now fair play here, HMRC do not adjust your tax code for any expenses reported as travel & subsistence, business entertaining or professional subscriptions. However, a lot of genuine business expenses do not fall under these headings. These get picked up under the Other Expenses heading on your P11D and treated as taxable unless you officially claim them as employment expenses on your tax return.
It tends to be people running their own companies from home who fall foul of these incorrect tax code adjustments, and as an accountant, I can tell you it is very annoying. Perhaps one day HMRC will see sense and stop automatically treating these items as taxable.
Better still, perhaps they will stop insisting on expenses being reported on P11Ds full stop.