HMRC 'live' tax codes - weird calculation?
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I'm not spending half my time on the phone to those plonkers. We were all promised many times that RTI would sort out this sort of thing not make it worse. They get the codes I am using every single submission, if they don't like them they are free to call me and I don't have 20 minute queueing times. They are also free to write to me and I'll reply within 3 days not 12 weeks.Hideous Muddles from Right Charlies0
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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......
Earlier there is reference to the 8/12 period but if (big if I know) this was actually worked out daily we'd have around 264/365 days left and 1 divided by 264 = 0.0038 so maybe something is being recalculated each day?!? Until the next RTI update is made?
Is it just the amount of restriction to clawback the tax owed which is changing or is the amount of tax owedchanging as well?
If all these tax codes are actually being sent to your partner and their employer I might have to buy shares in Royal Mail!0 -
Dazed_and_confused 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......
Earlier there is reference to the 8/12 period but if (big if I know) this was actually worked out daily we'd have around 264/365 days left and 1 divided by 264 = 0.0038 so maybe something is being recalculated each day?!? Until the next RTI update is made?
Is it just the amount of restriction to clawback the tax owed which is changing or is the amount of tax owedchanging as well?
If all these tax codes are actually being sent to your partner and their employer I might have to buy shares in Royal Mail!
It is just the restriction changing, the tax amount stays the same. I have now found this, which makes things a bit clearer, especially the calculation:
https://www.gov.uk/hmrc-internal-manuals/paye-manual/paye11100#_wmzizxooh89h
Edit - it is only showing on the tax account, nothing in the post thankfully!0 -
The 'Dynamic Coding' system calculates the underpayment based on what the system believes to be your estimated annual income.
It does this by looking at the RTI data year to date, calculating the tax due, and working out what to collect between now and the end of the year what it needs to collect to ensure the tax is paid in full by year end.
If the year to date RTI figures are wrong , then the system will be calculating the estimated annual pay wrong also.
When in the PTA adjust the estimated pay back to what you know is correct. This will readjust the code.
Be aware that everytime you log into the PTA and look at current year information the online service will send a data burst to the PAYE system which will update the code, even if you dont change anything.
This is because it calculates the restriction based on the number of days remaining in the tax year.[SIZE=-1]To equate judgement and wisdom with occupation is at best . . . insulting.
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So why aren't new tax codes being sent to these posters - see the comments by Jimmo in the Mid year change of tax code thread as well as those by Michelle UK above.0
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dori20 - thank you for your comments, it is always good to see things from HMRCs side, so your input is much appreciated!
Please see my comments below:The 'Dynamic Coding' system calculates the underpayment based on what the system believes to be your estimated annual income.
It does this by looking at the RTI data year to date, calculating the tax due, and working out what to collect between now and the end of the year what it needs to collect to ensure the tax is paid in full by year end.The problem that I have is that the underpaid tax is £1,847.20 but HMRC have stated that it is £2,837.14. I have calculated this using months 1-4 RTI actuals (from the PTA account) and months 5-12 estimates. The two gross pay figures added together are the same as the estimate earnings used by HMRC.
If the year to date RTI figures are wrong , then the system will be calculating the estimated annual pay wrong also. Not in this case as it is using my estimated annual pay figure (see below).
When in the PTA adjust the estimated pay back to what you know is correct. This will readjust the code. Earlier in the year, the HMRC estimated pay was huge (because there had been a one-off transaction that distorted things) so I adjusted it back to an estimate for the full year. That estimate still stands and HMRC have not adjusted it at all (as I would hope, so that is good!).
Be aware that everytime you log into the PTA and look at current year information the online service will send a data burst to the PAYE system which will update the code, even if you dont change anything.
This is because it calculates the restriction based on the number of days remaining in the tax year. That bit of the calculation does work ((£2,837.14/265)x365)/40 x 100 = £9,769 restriction, but it is based on the incorrect underpaid tax. As of today, the number of days is 256 and the restriction is now £10,113.
Based on the new tax code, by the end of the tax year, the tax will be overpaid by approx. £990. Can you tell me how the £2,835.14 will have been calculated? Could it have been done manually and miscalculated? It is definitely incorrect. It would be really useful if the Personal Tax Account actually showed the calculation of the underpayment. Effectively, HMRC say "we think this, so we are helping ourselves to some more tax, but we are not going to tell you how we came to that figure!"
I wondered if someone had perhaps performed the calculation that would be used to spread the unpaid tax across the remaining tax year, had calculated it on the actual tax AND the restriction, in error (effectively pro-rating both figures, rather than one?). For example, £1,847.20 underpaid to be repaid over 8 months, grossed up to 12 = £2,770, not too different from the £2,835.
As previously mentioned, the payroll department are supposed to be correcting the RTI submissions (although their level of understanding of PAYE is shockingly poor) so that the RTI will be correct, then hopefully the tax code will change to a correct one again. I am just really interested in the calculation, but not enough to ring them.....not that they would speak to me anyway!0 -
Dazed_and_confused wrote: »So why aren't new tax codes being sent to these posters - see the comments by Jimmo in the Mid year change of tax code thread as well as those by Michelle UK above.
In the details that HMRC have sent to employers, they have stated that they will try to send no more than 1 new tax code, per person, per month. I am guessing that once it gets near to the next payroll date, they will officially issue a new code that gets sent to the employer and the employee, fixing it for a least another month, until another change requires a new code. Only a guess though!0 -
MichelleUK wrote: »dori20 - thank you for your comments, it is always good to see things from HMRCs side, so your input is much appreciated!
Please see my comments below:
Based on the new tax code, by the end of the tax year, the tax will be overpaid by approx. £990. Can you tell me how the £2,835.14 will have been calculated? Could it have been done manually and miscalculated? It is definitely incorrect. It would be really useful if the Personal Tax Account actually showed the calculation of the underpayment. Effectively, HMRC say "we think this, so we are helping ourselves to some more tax, but we are not going to tell you how we came to that figure!"
I wondered if someone had perhaps performed the calculation that would be used to spread the unpaid tax across the remaining tax year, had calculated it on the actual tax AND the restriction, in error (effectively pro-rating both figures, rather than one?). For example, £1,847.20 underpaid to be repaid over 8 months, grossed up to 12 = £2,770, not too different from the £2,835.
As previously mentioned, the payroll department are supposed to be correcting the RTI submissions (although their level of understanding of PAYE is shockingly poor) so that the RTI will be correct, then hopefully the tax code will change to a correct one again. I am just really interested in the calculation, but not enough to ring them.....not that they would speak to me anyway!
I need to see the record to understand the figures unfortunately.[SIZE=-1]To equate judgement and wisdom with occupation is at best . . . insulting.
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Just in case anyone is interested....
The HMRC calculation is definitely wrong!
From subsequent new tax codes received, HMRC have been using month 3, rather than month 4 to calculate the tax underpayment. I am not sure if this is because the payslip date is mid-month, but either way, the calculation is incorrect, they must compare like with like!
If this calculation is automated, there could be thousands of people being told that they have underpaid tax when they have not!
I just now need to get HMRC to understand and get the calculation sorted.0 -
You are not having a good time with this!
From subsequent new tax codes received, HMRC have been using month 3, rather than month 4 to calculate the tax underpayment. I am not sure if this is because the payslip date is mid-month, but either way, the calculation is incorrect, they must compare like with like!
Does this not make less sense as 'your' month 3, being mid-month, is earlier?0
This discussion has been closed.
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