PAYE13050 - coding: coding: general principles: coding objections
A taxpayer who does not agree with a notice of coding may object
to the code stating the grounds of the objection. This can be done
at any time during the year. Normally, you will be able to reach
agreement, and if necessary, amend the code. However, if agreement
cannot be reached the taxpayer may formally appeal against it.
More information about appeals is in the Employment Income
(EIM) Manual at EIM71420 onwards.
The legal rules covering objections and appeals are in
Regulation 18 SI2003 / 2682. For Great Britain, TMA70 / SCH3 sets
out which body of Commissioners should hear an appeal. For Northern
Ireland TMA70 / S58 TMA70 / S59 gives this information.
The remainder of this subject is presented as follows
Age related allowances
Allowances
Cases which must be reported to Head Office first
Coding appeal: decision final
Disputed items
Estimates
Figures not understood
Flat rate expenses
Hardship claim
Higher rate taxpayers
Jobseekers Allowance claimants
K codes
Movement of papers
Rate of pay reduced
Underpayments coded in
Underpayment more than normal tax bill
Age related allowances
Take particular care if a taxpayer objects to your treatment of
age related allowances.
If you need to review the total income ask the taxpayer for
an estimate. Ask to be told at once if the facts change. Explain
that otherwise tax payments may be wrong and if the allowance is
too high there may be more tax to pay after the year is over.
Use COP Function CD to amend the code if necessary.
Allowances
Unless you have later information, assume past allowances will still be due. However, only give a fresh allowance when the facts are clear. For example, only give the Married Couple's allowance after the date of marriage or registration of the civil partnership.
Cases which must be reported to Head Office first
Before you list any case for appeal hearing consider whether you
need to report it to Head Office.
Report to PSN PAYE Technical, Shipley any appeal you cannot
settle locally that concerns
- An underpayment coded in. There is some guidance about these under ‘Underpayments coded in’ below
- A point of law important enough to affect other cases
Make sure that you set out the facts in any report to Head Office, which must go through your Officer in Charge, and also send a taxpayer full printout.
Coding appeal: decision final
The decision of the Commissioners or the County Court on a
coding appeal is final. There is no access to the High Court.
However, this does not stop HMRC issuing an assessment after the
end of the year including different figures. This means that the
same point could be argued twice.
It is for this reason that we consider it best practice to
take technical points on an appeal against an assessment, rather
than a coding adjustment. This enables either party to pursue the
case further through the courts, as well as avoiding duplication of
work at the Commissioners.
Disputed items
As a general rule, while an appeal remains open, leave disputed items in the coding unchanged. However, ‘Underpayments coded in’ below shows the occasions when you can make changes. Follow that advice if you have such a case.
Estimates
Remember that coding is provisional, so you will only have the final facts after the coding year ends. The taxpayer may question any estimate you use. Often you can accept what he or she suggests, especially if there is not much difference in the net result.
Figures not understood
You may prevent this type of appeal if you try to clear up any
doubts and explain the figures, before you amend the code.
Amend the code and leave out any amount in dispute if
- Deductions will start before you can explain the figures
And
- The appeal seems fair
Flat rate expenses
If the current year code includes a flat rate expenses allowance, the computer
- Carries forward the same allowance if it is unchanged
Or
- Enters the new agreed allowance for the following year
If the taxpayer appeals, correct the code using the facts given. There is a list of agreed amounts at PAYE12040.
Hardship claim
The taxpayer may claim that the extra deductions you propose will cause hardship. If this happens
- Consider the facts given, and if necessary ask for rough figures of income and outgoings
- If you agree that there is hardship, reduce the amount of underpayment coded in and amend the code
Do this even if it may take several years to recover all the
unpaid tax. However, do not reduce the code too far.
Use these points as a guide
- Coding in £100 or less should not normally cause hardship. However, use your judgement in exceptional circumstances, for example if the taxpayer has a lot of extra expenses in one year
- With larger amounts code in at least one third of the estimated tax payable for the year on all sources of income subject to PAYE
- Follow this rule in broad terms and round small balances so that you spread the total as simply as you can
If you have any doubts about a hardship claim, ask an Inspector to review the papers. If you are still unable to settle the case, report all the facts to PSN PAYE Technical, Shipley. If you propose to reduce the amount coded, do so before submitting the papers.
Higher rate taxpayers
A higher rate taxpayer may feel that the codes you propose will give the wrong result. When this happens take the following action
- Look again at the codes and how you have allocated rates of tax. Use the taxpayer's estimates of pay
- If the taxpayer objects remove any taxed income adjustment
- If necessary, change a sub-source code or amend a main source coding adjustment. If you make a higher rate adjustment in the main source code note the papers. Record the name of the sub-source involved. This will help you in the end of year review
- If agreement cannot be reached on how to spread the rates of tax, ask an Inspector to review the case
Jobseekers Allowance claimants
If a taxpayer claims that any part of the benefit is not taxable, ask the taxpayer the type and amount of benefit received. The Employment Income (EIM) Manual at EIM76100 onwards gives details of which benefits are taxable.
K codes
The main purpose of K codes is to collect tax on benefits in kind or state benefits. The taxpayer can object to a K code if it has been created by non-PAYE income or by an underpayment. If this is the case
- Take the non-PAYE income out of the code
- Refer to the Employment Procedures (EP) Manual at EP6525 onwards to see if the underpayment can be spread over a number of years or paid direct to the Debt Management office
Movement of papers
When an appeal is to be heard you may need to send the papers out of the office. If you do, attach a report, this will help any colleague who reviews the case.
Rate of pay reduced
If you find that the rate of pay has fallen, your estimates will be wrong. You can accept the taxpayer's estimates, but take into account the following points
- Only amend the code if the change is permanent
- If there will be little or no tax due on the new rate of pay, remove the underpayment from the coding and use Week 1 basis when you amend the code
Work out what balance remains for coding in later years. To do this find out for what part of the year the old code was in use. This will give you the fraction you have cleared out of the amount coded. Note the next year's coding and if a balance still remains for coding in later years use COP Function CD to set the MCODE signal.
Underpayments coded in
A taxpayer may appeal against the amount of an underpayment in
the coding. You may find four types of case.
The taxpayer
- Does not understand the figures
- Considers that you should only enter an amount equal to the normal PAYE bill
- Claims that the extra deductions will cause hardship
- Tells you of a permanent change in the rate of pay after deductions start. The new figures show that little or no tax is due
More information is given about each type of case under the separate headings in this subject.
Underpayment more than normal tax bill
The taxpayer may tell you that his or her normal PAYE tax bill
will be less than the underpayment. If so they may ask only to pay
tax arrears through coding up to that amount. In these cases you
must change the coding.
At Annual Coding the computer includes all the uncleared
underpayment to be coded. It cannot consider the level of tax due
on the estimated PAYE income. You will have to decide whether to
spread the total over more than one year's coding.
If so, use COP Function CD to
- Enter the amount you want to include in the first coding year
- Set the MCODE signal if the rest of the underpayment is too large for coding in the next year
