HMRC issues update on incorrect PAYE codes

HM Revenue and Customs (HMRC) has provided employers with more information on how the problem of a series of incorrect tax codes is being handled.

Worries emerged earlier in the year that a significant proportion of the 25 million tax coding notices that are being issued may be wrong.

The codes dictate how much employers and pension firms deduct in income tax for the coming 2010/11 financial year.

A number of people with one job have been receiving two (or more) tax coding notices with different codes. This is because HMRC's new system, which combines information on NICs and PAYE details for the first time, has been failing to distinguish between current and previous jobs in all cases.

Without complete information on those taxpayers who have moved from one job to another recently, the new database has been treating them as if they are in more than one job.

The tax authority is now in the process of reviewing individual cases to correct as many discrepancies as quickly as possible.

This means that in a number of cases where P2 forms have been issued to employees, HMRC won't be sending P9 forms to their employers until the reviews have been completed.

As a result, some employees' tax codes won't reach their employers in time for the new tax year.

If an employer does not receive a P9 in time, HMRC has said that they should continue to operate the existing 2009/10 code for the employee concerned even though the employee may already have been issued with a revised coding for 2010/11.

HMRC went on to add that, if an employee contacts an employer because they think their tax code may be wrong, then the employer should get them to call HMRC on the number printed on the coding notice or on 0845 3000 627.

In most cases a correct new tax code will be sent to both employers and employees in due course.