1 August 2014
HM Revenue & Customs
PAYE Policy,
Dear Sir/Madam,
Draft legislation: the Income Tax PAYE amendment No. X regulations 2014
AAT wishes to comment in respect of the proposed statutory instrument “Draft legislation: the Income Tax PAYE amendment No. X regulations 2014”.
AAT believes firmly in the fundamental principle that if HMRC changes a taxpayer’s tax code the department must advise the taxpayer on a timely basis of the change so that the taxpayer has an opportunity to query, and if appropriate appeal against the change to his or her tax code.
We are concerned that the proposals contained within the Explanatory Memorandum, given their obvious sensitivities, have not been given sufficient publicity. If the taxpaying public only became aware of this proposal after its implementation there is a likelihood of reputational damage and risks increasing public mistrust for HMRC. Taking this into account AAT strongly advises against any move to suppress the issuance of a coding notice to a taxpayer (para 4.3 Explanatory Memorandum).
We note that the proposal is to suppress the coding notice, “where the employee's PAYE income is not chargeable to tax or there is not anticipated that there is likelihood of a deduction on an individual’s PAYE income.” (para 4.5 Explanatory Memorandum). We do not accept the statement at 10.3 of the Explanatory Memorandum that there will be “nil” impact on taxpayers. In particular we are not persuaded that such an assumption is tenable as a working hypothesis. There are many occasions when an employee’s PAYE income fluctuates such as pre-holiday or festive holiday, HMRC in not in a position to anticipate such changes. If a coding notice containing an erroneous restriction was suppressed at such a time then an employee could suffer a loss to an eagerly anticipated income, at a time when it is most needed.
It is our understanding that paper coding notices are computer-generated and, as such, ‘untouched by human hands’. Taking this fact into consideration we cannot see any justification for a delay of 30 days for the employee to receive their coding notice after the employer has received their notice (para 4.7 Explanatory Memorandum). Furthermore, we can see that if the proposals were to be adopted then HMRC would leave itself open to the following criticism that “employers and employees are expected to provide information to HMRC in “real time” therefore, it would be reasonable to expect the same in return”
It should be noted AAT is supportive of the Governments Digital Agenda. As such, we support HMRC issuing coding notice changes to taxpayers electronically. However, where this action is undertaken it has to be supported by an email (to their nominated email account) advising the affected taxpayer that there is something new for them to view in their account with HMRC.
In para 7.3 of the Explanatory Memorandum it is stated that, “these changes do not affect an individual’s rights of appeal against their notice of coding”. Whilst in essence this statement might well be true the fact that there is a delay of 30 days from generation to receipt does disadvantage an employee by meaning that they will suffer the deductions made under PAYE for at least a period of 30 days longer than previously had been the position.
The Explanatory Memorandum states in para 7.4 that, “HMRC receives high volumes of calls from customers seeking reassurance on their Tax Code, particularly those where a change has no effect on their tax position.” Accepting this statement to be correct AAT finds it unacceptable that HMRC should seek to use a remedy which keeps the taxpayer further in the dark in respect of their tax affairs and as stated earlier in our response letter we foresee that a failure to communicate a change to a taxpayer is likely to result in a greater level of calls than if the concerned taxpayer received a clear and concise explanation of the reasons for the notified coding restriction.
We are also concerned that as a result of coding changes being applied by an employer at a point when a taxpayer is ignorant that a change is in the offing could result in driving more taxpayer contact with HMRC call centres, the very thing that HMRC is seeking to avoid. This change in behaviour could arise through the very fact that the taxpayer experiences a charge to tax on their PAYE income that they would not have been anticipating. A situation that is avoidable in part if the coding notice to the employee is issued at the same time as the change is notified to the employer (we note that employers using the desk-top viewer will already have marginally advance notice of coding changes at present).
For the above reason we consider the only fair solution, if the proposal is to be taken forward, is for the employer’s coding change notification to be suppressed for the same period of time.
In summary, if there is reason for HMRC to change a taxpayer’s tax code then we feel that it is entirely appropriate for HMRC to advise the taxpayer on a timely basis. We believe it would be ill advised for the department to unilaterally suppress an employee’s change of coding notice.
Yours faithfully
Brian Palmer
AAT Tax Policy Advisor