HM Revenue & Customs (HMRC) is forcing some taxpayers to pay their taxes earlier than necessary, warns top twenty firm of Chartered Accountants Kingston Smith LLP.  Those taxpayers have seen on their coding notice that HMRC will automatically collect tax from them on their investment income through PAYE (Pay As You Earn) each month.  This tax doesn’t actually need to be paid by the taxpayer until 31st January 2009, but is being collected early by HMRC.

Andrew Shaw, personal tax partner, Kingston Smith LLP explains: “We have found a number of instances with our clients where HMRC will automatically deduct tax from them earlier than necessary.  As accountants, we spotted this on their coding notice and rectified it with HMRC.  Our concern is that taxpayers not represented by an accountant may not be so eagle-eyed and might not spot this.  This means that taxpayers would be paying tax at least 10 months earlier than necessary - this money instead could be earning them interest in a savings account.”

Shaw continues:  “Taxpayers with more than one occupational pension scheme should also double check how HMRC are allocating their personal allowances.  We have had to draw HMRCs attention to cases where they have incorrectly allocated a client’s personal allowances against their smaller pension.   This would have had the affect of giving the client cashflow problems as they will have to wait until after the end of the tax year to reclaim the money back.”

About coding notices
The coding notice is divided into two parts, allowances and deductions; this will determine the amount of tax to be deducted from your salary or pension each month.  HM Revenue & Customs calculates tax codes to tell employers and pension providers how much tax should be deducted from the taxpayer in any tax year.  The code itself consists of the allowances that the taxpayer is entitled to (for example personal allowances) and less any taxable benefits (for example medical insurance or company cars).