Computer says no: the big tax botch
There is an old adage that “In this world, nothing can be said to be certain, except death and taxes.” I was reminded of this recently after learning that, following a software update, HMRC’s records show a number of taxpayers as being deceased — despite the fact that they are very much alive.
Unfortunately, HMRC are unlikely to accept that being officially recorded as dead removes the obligation to pay taxes and, in any case, there would then be inheritance tax to worry about. The problem has become apparent following the introduction of a new computer system that brought together all PAYE records. Previously, these were spread across 12 regional databases. HMRC tell us that the upgrade was supposed to solve many of the old PAYE coding problems that caused people to under- or overpay tax through the PAYE system. The good news is that the old problems have been resolved. The bad news is that we now have some new problems — at least for a while. These include:
● The loss of data for many taxpayers, such as the married couples’ allowance, the blind person’s allowance and tax underpayments for earlier years have all mysteriously disappeared from codes issued since 1 July.
● The amount of the state pension or other taxable state benefits included in your PAYE code may be incorrect. If so, this is probably because of difficulties in linking the data supplied by the Department of Work and Pensions (DWP) to the HMRC system. Where this happens, HMRC simply include what they hope is a reasonable estimate in your PAYE code. This estimate could remain there for years subject only to increases for inflation. Also, fundamental changes may not be noted. For example, when a widow’s pension becomes payable during the year, the DWP do not tell HMRC until after the year end.
● The new system has sent copies of PAYE codes to some taxpayers’ previous accountant rather than to their current one.
● Also, where underpayments of tax from earlier years have gone missing, the new PAYE computer seems to be incapable of reinstating the underpayment so it may remain uncollected for a while yet.
● And lastly, some taxpayers have been recorded as having died when they are still alive.
You should check your PAYE coding and ask HMRC or your accountant to correct any obvious errors to ensure you pay the right amount of tax. Without this intervention you could be under- or overpaying tax for years.
Mark Lee FCA, CTA (Fellow) is chairman of the Tax Advice Network