'It's time to explain tax codes in plain English' blog discussion

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  • I appreciate Paul_Herring's understanding and participation in the existing system. Clearly Paul has the marbles to take it all in and appreciate the complexity of this system. Most of us are at a loss as how to deal with tax issues. Am I wrong ?
    J_B.
  • Hey there's an awful lot of people not paying tax or under what they should but far more paying over the odds. The little man who doesn't know how to check, just leaves it to his employer and lot of them haven't got it right.

    What makes anyone think that the tax office wants you to understand and know how much tax you're supposed to pay unless you're in the higher bracket?
  • The idea makes some sense to show people whether they are on the standard code or not, but "£3,011" on a paylsip doesn't really explain much more than "301L" unless you read your Coding Notice. This is the purpose of course, it is a code, and the code itself shouldn't tell you how it was arrived at.

    If you see "Standard" you might also think it means it's right, which is not necessarily the case. A more important message would be to remind people to check their Coding Notices. I also think some form of Tax Return for everyone may be a good idea.
    I am an Accountant. You should note that this site doesn't check my status as an Accountant.
    All posts on here are for information and discussion purposes only and should not be seen as professional advice.
  • heather8heather8 Forumite
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    I agree that tax codes are very confusing for some people. Having worked for HMRC for 29 years (I no longer work there), I would add that they have spent loads of money and done lots of trials, to try and make the P2(notice of coding) easy to understand.

    The most important thing that people need to do, is check to see if it contains the correct information.

    As others have said most people will have 647L This measn 6475 allowances are given over the year (free pay), so you are allowed to earn roughly £539 per month before you pay tax. Pensioners (over 65) may have a higher personal allowance. If they have lots of other income then no age allowance may be due.

    If you only have 1 job/pension and your code is BR (basic rate) DO (40%) or anything ending with an X for example 647LX, then you need to make sure its right, as you could be paying too much tax. I know its a pain to try and get through to the Contact Centre to check, but ring up and check, or pop into your localtax office, if you still have one. (They have closed lots of smaller ones, so they may have reduced operating hours) and make an appointment to get it checked.

    If you receive benefits in kind in particular a company car, make sure that you tell HMRC you have this or if you have changed it that you tell them, otherwise you could be either underpaid or overpaid. The benefit for car will be shown as NCAR in the deduction side of your P2.
  • SoubretteSoubrette Forumite
    4.1K Posts
    I too thought the BR meant basic rate ie inclusive of all allowances when I first started work after a 10 year career break :o

    Luckily I was discussing it with a friend and she put me right so I was able to get a refund.
  • I'm a retired Payroll Manager for a very large concern and fortunately, for me, understanding the coding is not therefore a major problem. However, as Heather says excessive amounts of money have been spent (at our expense!!) in 'simplifying' the P2. Despite my experience, I find the new notice almost impossible to understand. It was much clearer when your allowances were listed on one side and deductions, such as untaxed income (e.g. state pension) etc. on the other side, with the nett allowances shown in full and translated into the code to be sent to your employer. I would suggest that this document (notice of coding) is THE most important document to check and if necessary query with the tax office as there is nothing your employer can do about explaining / altering the code. However, in spending all this money in trying to become more user friendly to the public, the top brass in HMRC have decided to make cuts by using these useless call centres where the staff are poorly paid and very ill informed. They seem to have a list of answers which they try to fit around your question - even the managers have little experience and are certainly not Tax Inspectors. I have been down this road several times to recover money owed to me and in the end put in a formal complaint. The upshot was that I got my money back plus compensation, as a gesture of good will. Surely it would be cheaper to reinstate a few more Inspectors or at least to use local staff. Years ago no one really liked the Tax Office but you knew that 99% of the time their figures were accurate and that they were highly efficient.

    ----
    heather8 wrote: »
    I agree that tax codes are very confusing for some people. Having worked for HMRC for 29 years (I no longer work there), I would add that they have spent loads of money and done lots of trials, to try and make the P2(notice of coding) easy to understand.

    The most important thing that people need to do, is check to see if it contains the correct information.

    As others have said most people will have 647L This measn 6475 allowances are given over the year (free pay), so you are allowed to earn roughly £539 per month before you pay tax. Pensioners (over 65) may have a higher personal allowance. If they have lots of other income then no age allowance may be due.

    If you only have 1 job/pension and your code is BR (basic rate) DO (40%) or anything ending with an X for example 647LX, then you need to make sure its right, as you could be paying too much tax. I know its a pain to try and get through to the Contact Centre to check, but ring up and check, or pop into your localtax office, if you still have one. (They have closed lots of smaller ones, so they may have reduced operating hours) and make an appointment to get it checked.

    If you receive benefits in kind in particular a company car, make sure that you tell HMRC you have this or if you have changed it that you tell them, otherwise you could be either underpaid or overpaid. The benefit for car will be shown as NCAR in the deduction side of your P2.
  • anniecaveanniecave Forumite
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    I'd agree with a lot of the above comments. I know someone who got a letter saying she owe'd tax. She didn't know how to check any of the information sent. Once I'd looked through it and her notices of coding then I could see immediately what the problem had been, but that's only because I could explain to her what the tax codes mean and the way the system works.

    It's all just meaningless numbers unless you understand how it all fits together!
    Indecision is the key to flexibility :)
  • My Tax code is 637L. Even though my earnings are in the standard bracket, so in theory is should be 647L, the fact it isn't, I can only assume is down to some Benefit I am getting from my Company - I don't get any of the ones listed in the examples. Does contributing into a Pension Scheme where the company pays some as well count?
  • The coding system is antiquated and was designed in the days when people rarely changed their jobs and it was just not possible to do things in "real time" so bits of paper (often manually produced) had to fly around.

    We don't need to do that anymore, and there's a better way. Tax deductions should be worked out "in real time". Gross payers (eg employers, pensions and perhaps even building societies) just need to contact HMRC with the amount to pay and NI number, and back would come the amount to be deducted. This would be determined according to the total paid and deducted so far in the year, as well as other relevant circumstances.

    Sure it would need some IT - but it would amount to a simplification by removing the tax coding tier of complication. No need for P45, P46 or even P60 anymore. Improved privacy too - it will be less obvious to any particular employer that you have other sources of income. Also makes it easy to make one-off payments to casual labour.

    But whatever the system, it doesn't help when governments forever increase the level of complexity - different allowances, tax rates, credits etc.
  • Joe65_2Joe65_2 Forumite
    148 Posts
    ' heartily sick of the meddling bureacrats regularly revising one's tax code, as they attempt to second guess what one's income will be based on sometimes once-off historical data. When one attempts to put things right it more often than not results in further errors, so one has to wonder if it's worth bothering about at all, as it should all be sorted , once , by Annual Return.

    I mean. it's hardly Self Assessment is it , when they pre-emptively change the amounts, then expecting you to put it right thereafter
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