Cash Clinic: Taxing questions of codes, allowances and self-assessment

Q For many years I have filed a tax return, but HMRC now says it does not want one. After the last one, for 2009-10, I received a refund of about £2,000. I queried the tax that I had paid for 2010-11, but all I received was a letter saying that it was correct without any indication of how they had arrived at that conclusion. Given their recent record I am reluctant to believe them without better evidence.

Is there any way that I can check? I was employed but retired part way through the year and paid PAYE with some additional income and expenses.

JK Falkirk

A reputable accountant can check your position for you but there is also some self-assessment tax software that can be purchased, downloaded and used to check your tax position. (Go to www.hmrc.gov.uk/efiling/sa_efiling/soft_dev.htm for a list of acceptable software for self-assessment submissions).

If, on entering all your details for 2010-11 on such software, you discover that you have overpaid tax, just complete a form R40 tax repayment claim (which can be downloaded from the HMRC website) and send it to HMRC. If you discover that you have underpaid tax, you can write to HMRC to point this out (send in the calculation from the software) and ask for the underpaid amount to be collected through your tax code for 2012-13 that is applied to your pension.

Q I am a pensioner and have just received my new tax code for the year 2012-13. It is different from my last tax code but I am not sure what it should be. Can you help?

JS Edinburgh

A I would recommend that anybody who receives a new tax code in the next few months checks the details as soon as they receive them. Most of these will have been automatically generated by HMRC’s computer systems and will not have been checked manually by tax officers – potentially resulting in significant numbers of taxpayers either underpaying or overpaying tax.

HMRC has had problems getting its new National Insurance and PAYE system working smoothly and has admitted that it will not “fully stabilise” the system until 2013.

Difficulties are most likely to arise if you have changed jobs, have more than one job or have started drawing a pension. In any of these circumstances it is vital to check that the tax code applied to each is correct. HMRC’s system should ensure that you only get one personal allowance (the basic allowance is £8,105 for 2012-13) even if you have tax codes for several jobs or pensions. But if there has been a mistake and it is given twice, you will start building up a tax bill of £135 a month from April. Worse still, the allowance may not be reflected in any of your tax codes, causing you to pay too much each month.

If you are aged 65 or over you may be entitled to a higher personal allowance, depending on your age and income. For individuals aged 65 to 74, the allowance for 2012-13 is £10,500 and for individuals aged 75 and over, it is £10,660. However, both these figures are reduced if the individual’s annual income for 2012-13 exceeds £25,400: the allowance is reduced by £1 for every £2 over this limit.

In such cases, HMRC has to estimate the individual’s total income for the year ahead. With interest rates falling, it is likely that any investment income the individual receives will be lower in 2012-13 so it is vital to check that the estimates that HMRC has used in its calculations look reasonable.

• Questions answered by Neil Whyte, a tax partner with accountants and business advisers PKF.

If you have a question you need answered, write to Jeff Salway, Personal Finance Editor, The Scotsman, 108 Holyrood Road, Edinburgh EH8 8AS or email: [email protected]. The above is for general purposes only and is not tailored for individual use. It does not constitute legal, financial or investment advice on any particular matter and must not be treated as a substitute for specific advice. No action should be taken in reliance of the information given. The Scotsman Publications Ltd and PKF accept no liability on the basis of this article.