Comment from Diana Flier, Compliance Analyst at Intuit UK.

Earlier this month the HMRC reported a tax code error which has resulted in people paying too much or too little tax. The error came about due to HMRC advising incorrect tax codes be used for payroll calculations and was identified following HMRC’s introduction of a new single computer, NPS, running the PAYE system which automatically reconciles individual tax records. NPS is a huge improvement on the multiple ageing regional computers that required manual reconciliation.

While most people have paid the right amount of tax, so won’t get a calculation, the newspapers report that HMRC will ask 1.4 million people for an average of £1,400. HMRC is issuing revised tax codes to those affected, shortfalls under £300 will be written off, and will start to re-coup the extra tax from next year for amounts over £2,000. So while the taxman’s error doesn’t affect companies, it could affect small business owners or their employees’ tax codes. HMRC are sending out a P800 form directly to those affected advising them of their new tax code with a revised tax calculation. On receipt of this it is advisable to check it is correct and query anything you disagree with.

There is no reason why this tax code problem should affect small businesses payroll or any existing accounting software being used. Going forward small businesses should continue updating payroll with any new tax codes for employees that are received from HMRC and be mindful that next year employees may receive less take home pay than they were expecting.