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PAYE refresh

What action should you take for dynamic coding or ‘PAYE refresh’?

Thursday 22 February, 2018

Cracking the code

Dynamic coding or 'PAYE refresh' was launched in July 2017, but its impact will be felt by even more taxpayers as HMRC issues tax codes for 2018/19. What action should you take?

PAYE - What has changed?

HMRC are using third party information, from pension providers and personal tax accounts to update tax codes which collect the underpayment in year (now called an in year adjustment), rather than show it as a potential underpayment which, in the past, was collected the following year. They will also minimise the use of Week 1/Month 1 codes to speed up refunds which were not previously repaid until after the tax year end.

HMRC will use estimated pay to calculate the under/over payment by annualising the pay-to-date figure from Real Time Information (RTI).

Bonuses, particularly if paid early in the year, will cause problems as estimated pay will be considerably higher than actual pay, given that the calculation assumes pay will accrue evenly throughout the year.

PAYE - What action should you take?

It is vital that all Directors and employees activate their personal tax account (PTA) so they can check if their estimated pay is accurate. This is accessed via HMRC's Government Gateway portal. It won't be correct if any income sources, allowances or benefits in kind are missing or wrong.

The majority of the UK’s taxpayers often assume that the PAYE code issued by HMRC is correct, which is very often not the case.

If the employee only finds out about an incorrect PAYE code when they open their payslip they will almost certainly blame the employer and ask for support to sort things out.

Cascading information about dynamic coding to employees will help those employees take ownership for what HMRC has done with the data that they, or the employer, have provided.

Annual coding run

Right now HMRC is using the estimated pay, benefits and reliefs shown on the taxpayer’s PTA in mid-January, to inform their PAYE code for 2018/19. As codes begin to be issued to employees and employers for 2018/19, it is important that individuals look out for the following coding oddities:

  • BR code operated against their main income source, rather than a personal allowance of £11,850.
  • Pension tax relief is missing
  • Income sources are still showing that are no longer live
  • Duplicated employments (they do happen despite the best efforts of agents, employers and HMRC)
  • Scottish taxpayers without ‘S’ prefix codes
  • Marriage allowance election is not shown
  • Benefits in kind missing, or included when no longer provided, or incorrect as the benefit is now taxed via the payroll.

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