The Latest News regarding Annual Notices of Coding

HMRC has identified some issues regarding annual codings, which has resulted in some incorrect tax codes being issued for 2010/11.  These issues have been investigated and HMRC has asked Payroll Alliance to update their members and customers with the latest news which is as follows:

Annual issue of notices of coding:  Data Mismatch Issues

• In some cases another employment record has been created for the same individual with the same employer or pension provider.  This can potentially lead to the wrong personal allowances being allocated against the real employment.  In the main this has arisen because the information submitted on form P14 at the end of the year does not exactly match the information we hold on our main record.  This may differ in respect of the works number or other details
• In some instances the receipt of the P14 is the first indication HMRC hold of the employment or payment of a pension.  Whilst personal allowances will be allocated against this source of income it is quite possible that this will not accurately reflect the personal circumstances of the individual.  A specific example of this is where an occupational pension is paid and we have not had the opportunity to reflect receipt of National Insurance benefits in the code number
• For many commercial reasons an employer or pension provider may well amalgamate or disaggregate PAYE scheme membership during a year. In some cases that happens without HMRC being aware so the employer reference quoted on the P14 does not match that on our systems. This can lead to duplicate records being created for the same individual
• We have identified some records where a previous employment that has ceased has not been closed on our system.  There are several reasons why this can occur. We will correct these cases to record the fact that the employment has ceased and make any changes that are needed for the correct code to be applied against a subsequent employment.
• If a P45 or electronic notification by the employer of an employee retiring on a pension (PENNOT) has been received in 09/10 for a previously unknown employment, NPS created and then ceased the employment record.  Subsequently if a P14 was posted for 08/09 it will have triggered setting the record up again as a live employment so there is now an open employment and a tax code was issued.  This is a timing issue resulting from the late processing of 08/09 P14 data onto NPS and should not be repeated in future years.  HMRC will review these cases and correct the employment details.

• One very specific issue in relation to some of the largest employers and pension providers is the length of works numbers.  The old COP system truncated these unique identifiers to a maximum of 14 characters which was historically sufficient for employers and this shortened version was migrated into NPS.  We are aware that some employers now use a longer identifier and this is used to populate forms P14 at the end of the year.  Unfortunately this then leads to a mismatch in the data held.   NPS accepts works numbers up to a maximum of 20 characters so this should not happen in the future, but HMRC need to amend our current records to reflect the correct works number used by employers. A technical note covering this point has been issued recently www.hmrc.gov.uk/ebu/paye_techpack/business-rules.pdf 

• If a P14 is submitted with nil pay and tax but with no date of leaving included, NPS will have created an employment record and may have issued a tax code accordingly which could be incorrect.

• Where there are two live employment records, NPS will automatically allocate any unused allowances at the primary source to the secondary source.  If there are more than two employments but some allowances are still on the primary record manual intervention is required to allocate these to additional secondary sources.  HMRC will amend these codes to ensure that all allowances are correctly allocated.

In addition to these, we provide a regular update of IT issues that we are currently in the process of fixing or have already fixed.  These pages, which may be found in the service issues section of the tax agents’ pages, will be refreshed in the next few days and can be found at www.hmrc.gov.uk/agents/nps.htm

We will shortly start to issue P9s to employers but you may not receive as many as you were expecting.  Most P9s will be issued to employers as normal, but we are reviewing those individuals we think are most at risk of receiving an incorrect tax code.  You will not receive a P9 for these employees/ pensioners until we have reviewed these cases.  Some P9s may therefore be issued at a later date than you would normally expect.