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  • FIRST POST
    • MichelleUK
    • By MichelleUK 14th Jul 17, 10:38 AM
    • 319Posts
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    MichelleUK
    HMRC 'live' tax codes - weird calculation?
    • #1
    • 14th Jul 17, 10:38 AM
    HMRC 'live' tax codes - weird calculation? 14th Jul 17 at 10:38 AM
    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!

    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!
Page 1
    • Dazed and confused
    • By Dazed and confused 14th Jul 17, 11:17 AM
    • 1,848 Posts
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    Dazed and confused
    • #2
    • 14th Jul 17, 11:17 AM
    • #2
    • 14th Jul 17, 11:17 AM
    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?
    • purdyoaten2
    • By purdyoaten2 14th Jul 17, 11:46 AM
    • 709 Posts
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    purdyoaten2
    • #3
    • 14th Jul 17, 11:46 AM
    • #3
    • 14th Jul 17, 11:46 AM
    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?
    purdyoaten lost his password
    • MichelleUK
    • By MichelleUK 14th Jul 17, 12:08 PM
    • 319 Posts
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    MichelleUK
    • #4
    • 14th Jul 17, 12:08 PM
    • #4
    • 14th Jul 17, 12:08 PM
    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?
    Originally posted by Dazed and confused
    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
    • MichelleUK
    • By MichelleUK 14th Jul 17, 12:13 PM
    • 319 Posts
    • 194 Thanks
    MichelleUK
    • #5
    • 14th Jul 17, 12:13 PM
    • #5
    • 14th Jul 17, 12:13 PM
    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?
    Originally posted by purdyoaten2
    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!
    • sheramber
    • By sheramber 14th Jul 17, 6:02 PM
    • 3,854 Posts
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    sheramber
    • #6
    • 14th Jul 17, 6:02 PM
    • #6
    • 14th Jul 17, 6:02 PM
    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!
    Originally posted by MichelleUK
    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.
    • MichelleUK
    • By MichelleUK 14th Jul 17, 6:46 PM
    • 319 Posts
    • 194 Thanks
    MichelleUK
    • #7
    • 14th Jul 17, 6:46 PM
    • #7
    • 14th Jul 17, 6:46 PM
    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.
    Originally posted by sheramber
    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!
    • MichelleUK
    • By MichelleUK 15th Jul 17, 2:03 PM
    • 319 Posts
    • 194 Thanks
    MichelleUK
    • #8
    • 15th Jul 17, 2:03 PM
    • #8
    • 15th Jul 17, 2:03 PM
    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......
    • chrismac1
    • By chrismac1 15th Jul 17, 4:12 PM
    • 2,464 Posts
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    chrismac1
    • #9
    • 15th Jul 17, 4:12 PM
    • #9
    • 15th Jul 17, 4:12 PM
    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 Charlies
    • badmemory
    • By badmemory 15th Jul 17, 5:57 PM
    • 938 Posts
    • 967 Thanks
    badmemory

    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......
    Originally posted by MichelleUK
    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.
    • Wayne O Mac
    • By Wayne O Mac 15th Jul 17, 6:01 PM
    • 207 Posts
    • 259 Thanks
    Wayne O Mac
    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.
    Originally posted by chrismac1
    Is there a particular part of the PAYE regulations that authorises you to ignore an issued code without consulting HMRC?

    I would not have expected a competent and professional accountant to disregard regulations in such a manner.
    • chrismac1
    • By chrismac1 15th Jul 17, 6:39 PM
    • 2,464 Posts
    • 1,453 Thanks
    chrismac1
    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 Charlies
    • Dazed and confused
    • By Dazed and confused 15th Jul 17, 8:32 PM
    • 1,848 Posts
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    Dazed and confused

    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!
    Last edited by Dazed and confused; 15-07-2017 at 9:25 PM.
    • MichelleUK
    • By MichelleUK 17th Jul 17, 11:02 AM
    • 319 Posts
    • 194 Thanks
    MichelleUK

    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!
    Originally posted by Dazed and confused
    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!
    • dori2o
    • By dori2o 22nd Jul 17, 11:47 PM
    • 7,338 Posts
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    dori2o
    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.
    To equate judgement and wisdom with occupation is at best . . . insulting.
    • Dazed and confused
    • By Dazed and confused 23rd Jul 17, 3:54 AM
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    Dazed and confused
    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.
    Last edited by Dazed and confused; 23-07-2017 at 3:56 AM.
    • MichelleUK
    • By MichelleUK 23rd Jul 17, 11:42 AM
    • 319 Posts
    • 194 Thanks
    MichelleUK
    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.
    Originally posted by dori2o
    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!
    • MichelleUK
    • By MichelleUK 23rd Jul 17, 11:47 AM
    • 319 Posts
    • 194 Thanks
    MichelleUK
    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.
    Originally posted by Dazed and confused
    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!
    • dori2o
    • By dori2o 25th Jul 17, 10:07 PM
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    • 12,238 Thanks
    dori2o
    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!
    Originally posted by MichelleUK
    I need to see the record to understand the figures unfortunately.
    To equate judgement and wisdom with occupation is at best . . . insulting.
    • MichelleUK
    • By MichelleUK 8th Aug 17, 11:11 AM
    • 319 Posts
    • 194 Thanks
    MichelleUK
    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.
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