Checking your PAYE coding notice

You should check your code to see that it is reasonable. If it seems unusual, you should ask HM Revenue and Customs for an explanation of your coding. For example, the standard tax code for a main job for anyone aged under 65 years old is 747L (in 2011-2012). A second job should normally have a BR (basic rate) code.

Notices of coding are usually sent out in about February for the coming tax year. You should check you notice of coding then and keep it so you can check if your employer is deducting the right amount of tax when the new tax year starts in April. As with all paperwork relating to taxes, it’s best to keep it for at least six years in case there are problems and you want to refer back to it at a later date.

If the coding notice is wrong, you will pay the wrong amount of tax – and you are likely to have to pay back any underpayment of tax.

There is information about checking your tax code on the HMRC website at  http://www.hmrc.gov.uk/incometax/tax-codes.htm.

Mistakes in operating PAYE

If you have not paid enough tax and think there may have been a mistake by your employer or pension provider then you can ask HMRC to consider collecting the tax owed from your employer or pension provider rather than from you. You will need to show HMRC that it is reasonable to believe that the employer made an error, and they should then investigate the position further.  However, if the employer can show that they made no error, or acted in good faith, then HMRC will pursue you for the underpaid tax.  There is guidance on this, including what may constitute an ‘employer error’ on the HMRC website at http://www.hmrc.gov.uk/manuals/pommanual/paye95011.htm.

HM Revenue and Customs may also give up tax due under Extra Statutory Concession A19 (ESC A19).  This is if the underpayment has arisen because HMRC has had the information necessary for them to identify and correct the problem, but they failed to do so. They will consider this, but only where:

• there have been delays in them acting on the information (HMRC considers a delay of 12 months from the end of the tax year in which it received the information to be reasonable) and
• you could reasonably have thought your tax position was correct

With regard this last point, HMRC expects you to have checked your PAYE tax code when it is received. If you didn’t understand the code, HMRC expects you to have contacted the tax office for an explanation.  They also do not consider their receipt of your employer’s annual PAYE returns (i.e. your P60 details sent to them by your employer) as being information for this purpose.  It can therefore be very difficult to claim ESC A19 in practice for all but exceptional circumstances.

There is more information about ESC A19 on the HMRC website at http://www.hmrc.gov.uk/manuals/pommanual/PAYE95000.htm.