HMRC gets P800 Calculations Wrong

HMRC are sending P800 tax calculations to taxpayers that do not follow the legal requirement to apply allowances to the taxpayer's advantage. When questioned on this point by software developers HMRC said that they were using diff erent methods to calculate P800s and liabilities under self assessment - one operated by the PAYE team and one by the self assessment team based on its specifi cation documentation.

by Pete Bird, Bird & Co, Certifi ed Public Accountants

The HMRC PAYE team responsible for the P800 process is aware that the allocation of reliefs and allowances is not always in the taxpayer's best interests as set out in legislation but is not able to update the logic. HMRC have confi rmed: 'If a P800 calculation is inadvertently issued without correctly allocated allowances or reliefs we will act quickly to correct the issue as soon as it is brought to our attention. We are actively exploring opportunities to deliver a technical solution to prevent this risk.' The discrepancies were uncovered by Tim Good (Absolute Software director and tax lecturer) after taxpayers asked him to review their P800 calculations. He traced the issue back to HMRC's default sequence for applying the personal allowance. Legislation has always required personal allowances and relief to be allocated in the most favourable way to the taxpayer and 'until we discovered it, HMRC's calculator allocated them using the same hierarchy as the allocation to the rate band: non-savings income; savings income; and dividends'. You should therefore carefully check the calculations if you receive a P800 tax calculation or alternatively, have a professional do so. (John Stokdyk writing on AccountingWeb 10.8.21)

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