HMRC 'live' tax codes - weird calculation?
MichelleUK
Posts: 427 Forumite
in Cutting tax
I know that we have a couple of current/ex HMRC people on this board and wondered if they could shed any light on this oddity?
My partners employer has meddled with his YTD tax figures (long story!), resulting in the July RTI figures sent to HMRC incorrectly showing that he had underpaid tax by £1,847.20.
Impressively, HMRC spotted this straight away and adjusted his tax code downwards, and to a month one basis, to recover the underpayment this tax year.
The odd thing is, the actual underpayment at the end of month four is £1,847.20 but they say they 'estimate' that he will underpay by £2,837.14. What is the algorithm that they use to get that figure? I am an accountant and have tried all sorts of assumptions that HMRC may have tried but I am flummoxed!:D
I am only asking out of interest, as the corrections are currently being sorted by his payroll department and it should all correct itself eventually... I am just very intrigued!
My partners employer has meddled with his YTD tax figures (long story!), resulting in the July RTI figures sent to HMRC incorrectly showing that he had underpaid tax by £1,847.20.
Impressively, HMRC spotted this straight away and adjusted his tax code downwards, and to a month one basis, to recover the underpayment this tax year.
The odd thing is, the actual underpayment at the end of month four is £1,847.20 but they say they 'estimate' that he will underpay by £2,837.14. What is the algorithm that they use to get that figure? I am an accountant and have tried all sorts of assumptions that HMRC may have tried but I am flummoxed!:D
I am only asking out of interest, as the corrections are currently being sorted by his payroll department and it should all correct itself eventually... I am just very intrigued!
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I doubt it will be possible to work that out without knowing what figures were on the incorrect RTI data (like the old P11 sheet?), when the new tax code was sent out and what tax rate your partner is paying.
Could be messy if he is just over the limit from basic to higher rate or lives in Scotland.
Is the £2837.14 the underpayment amount or the tax code restriction amount?0 -
Having read previous posts I would be sure that you have explored all options. However, grasping at straws, was there an underpayment restriction already in the code which also would now not be fully collected?0
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Dazed_and_confused wrote: »I doubt it will be possible to work that out without knowing what figures were on the incorrect RTI data (like the old P11 sheet?), when the new tax code was sent out and what tax rate your partner is paying.
Could be messy if he is just over the limit from basic to higher rate or lives in Scotland.
Is the £2837.14 the underpayment amount or the tax code restriction amount?
I have seen the RTI data as it is shown in the personal tax account. They changed the tax code within 48 hours of receiving the RTI information and he is a 40% tax payer. The £2,837.14 is the actual tax, the restriction is over £9k.
I am 100% happy with the tax calculation, just intrigued how HMRC turn an underpayment of £1,847.20 into £2,837.14! It's all very odd
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[quote=[Deleted User];72836698]Having read previous posts I would be sure that you have explored all options. However, grasping at straws, was there an underpayment restriction already in the code which also would now not be fully collected?[/QUOTE]
No, no previous restriction. Previous tax code was just reduced by benefits and then increased for pension contributions.
The nerd in me would love to see the algorithm behind the calculation, as there does seem to be something amiss! Mind you, with the amount of errors that are currently programmed into the 2016/17 tax return, it should not surprise me if this new dynamic coding system has faults too!0 -
MichelleUK wrote: »No, no previous restriction. Previous tax code was just reduced by benefits and then increased for pension contributions.
The nerd in me would love to see the algorithm behind the calculation, as there does seem to be something amiss! Mind you, with the amount of errors that are currently programmed into the 2016/17 tax return, it should not surprise me if this new dynamic coding system has faults too!
While an underpayment of £2837.14 is coded in this amount will be split over the 8 months left. not 12 months. So only 8/12 of £2837 .14 will be collected. On paper this amount is slightly more than the amount due but the tax tables may account for that over the remaining months.0 -
While an underpayment of £2837.14 is coded in this amount will be split over the 8 months left. not 12 months. So only 8/12 of £2837 .14 will be collected. On paper this amount is slightly more than the amount due but the tax tables may account for that over the remaining months.
That would result in a very similar amount of tax being paid (£1,891) and this was one of the options I originally tested. BUT the restriction amount is £9,769, when you would expect it to be £6,927 ((£1,847.20/40x100)/8x12). The restriction amount that they have used would result in tax being paid of £2,605 ((£9,769*0.4)/12x8). I should probably not worry, as it is being corrected, but I just hate not understanding calculations!0 -
Even odder......
I have been logging in daily to check if the employer has amended their RTI figures yet, and the tax code is changing daily, even though none of the other figures have changed!
The amount of the restriction is being multiplied by 1.0038 each day and the tax code is dropping. I know that HMRC have warned employers to expect more tax code updates under this system, but changing a code daily, for no apparent reason, seems very strange. It is almost like it is trying to add in daily interest......0 -
I Would not read anything much into this. My first action on getting any notice of coding is to check if it is just a pure and simple blunder. Years ago I used to call HMRC about them, now there are so many I can't be bothered wasting my time and just ignore stupid codes and use sensible ones.Hideous Muddles from Right Charlies0
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MichelleUK wrote: »
The amount of the restriction is being multiplied by 1.0038 each day and the tax code is dropping. I know that HMRC have warned employers to expect more tax code updates under this system, but changing a code daily, for no apparent reason, seems very strange. It is almost like it is trying to add in daily interest......
Actually this would be quite logical in a computerised world. Think of it as if he was paid daily. Then each days pay that didn't use the new tax code would leave a shorter time to collect the tax & so the tax code would need adjusting. I think their programming needs a bit of a tweak as it doesn't seem an effective way of working.0 -
Is there a particular part of the PAYE regulations that authorises you to ignore an issued code without consulting HMRC?Years ago I used to call HMRC about them, now there are so many I can't be bothered wasting my time and just ignore stupid codes and use sensible ones.
I would not have expected a competent and professional accountant to disregard regulations in such a manner.0
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