HM Revenue & Customs (HMRC) has announced its list of priorities to make near real time adjustments to taxpayers’ tax codes so they pay the right amount of tax within the current tax year, as part of their ongoing Making Tax Digital (MTD) campaign.
The plans, which HMRC intends to implement in the 2017-18 tax year, will ensure that real time reporting of PAYE codes is available.
This requires a change in current HMRC practice, that will require them to use the information it already holds, and is supplied by employers and pension providers through real time information (RTI), in a ‘more proactive way’.
This will mean that more taxpayer’s end the tax year having paid the correct amount of tax by keep tax completely up to date in-year so that more taxpayers do not end the year with an underpayment or overpayment.
The initial change under the proposals will allow HMRC to change a taxpayers PAYE code to adjust, correct or collect any in-year underpayment that arises as a result of a change to the their tax code
Under the proposals those affected by PAYE will be able to claim an in-year repayment and arrange for it to be paid into their bank account through their personal tax account, which will be available to them under MTD.
HMRC plans to notify employers of code changes on a monthly basis, allowing them and their employees to make claims or pay tax if circumstances change.
Employers and pension providers are likely to face an increase volume of coding notices as HMRC will have the ability to change codes more often and more easily than before.
If successful the new system will mean that taxpayers will no longer face year-end tax bills or rebates, as they will pay the right amount of tax at the right time.