PAYE tax calculations 2011/12 – what to do

You work or get a pension, or perhaps both. Tax is taken off under PAYE, but this does not mean you can be complacent – always check your tax, even if you think everything should be straightforward.

Your tax affairs can be complicated if, for example, you:

• have more than one job or pension or are in receipt of a taxable state benefit
• change jobs or retire
• are widowed or lose a civil partner
• get extra benefits or expenses payments from your employer on top of your cash wages
• need to claim extra allowances or expenses against your tax.

In these and other situations, HMRC might need to send you a PAYE tax calculation (a ‘P800’) after the end of the tax year when they put all your records together, if they find you have paid too much or too little tax.

HMRC now send out P800s every year, most of which are generated automatically by their computer systems. This process is by no means perfect, but it is a normal part of the PAYE calendar. Our article ‘5.1 million tax reconciliations – not errors’ explains more.

This guide explains what to do if you get a P800 for 2011/12. It is split into the following sections:

1. Will you be getting a calculation?

2. How to check the calculation

3. What to do if you are due a refund (‘overpaid’), or

4. What to do if you owe some tax (‘underpaid’)

5. General guidance on contacting HMRC and getting further help

6. Calculations for earlier years (2010/11 and before)

7. Example letters

Not everyone will get a P800 tax calculation. Some people fill in tax returns, so their tax affairs will be sorted out in that way. For most others, PAYE works well so that you pay everything you owe during the year. But HMRC might not know everything they need to know to get your tax right, so check your position even if you don’t receive a calculation.

HMRC will send notes with the calculation to help you check it. Points to look out for are:

HMRC might have used estimated figures on the calculation, but not made it clear that they are estimated. Compare all figures to your own records – for example, P60s and P45s from employers and pension payers, P11Ds, and bank and building society statements showing interest and tax deducted.

HMRC sometimes also agree to tax small amounts of income you get ‘gross’ (that is, without tax taken off) through your PAYE code, without you having to fill in a tax return each year. This might apply to rental income or some types of savings interest, for example. HMRC will probably have used an estimate of the income to work out your PAYE code for the year and may have used the same figure in the P800 calculation. Check the amount that HMRC have used is still correct and tell them if it needs changing or if it is no longer relevant (that is, you have stopped getting that type of income).

More than one source of income might be added together in a single line on the calculation. If, for example, you have more than one job or pension, you might have to add up figures from multiple P60s to arrive at the amount shown as ‘PAYE income’.

c. Spot what might be missing

This can be tricky, as it’s easier to check what is on the form than to work out what is not! But HMRC might not know about some things which could affect your tax calculation. For instance, you should tell HMRC if you have made pension contributions or Gift Aid donations, particularly if either:

• you are aged 65 or over and your 2011/12 income was over £24,000 (so your calculation shows your age-related personal allowance has been reduced), or

• you are a higher rate taxpayer (that is, your calculation will show some tax due at 40%).

If you are in receipt of a taxable state benefit, the Department for Work and Pensions (DWP) should have told HMRC about it. But because the DWP do not operate PAYE in the same way as employers or pension providers, you may not have paid the right tax overall by the end of the tax year. The taxable amount of state benefit for the year should therefore be included in your P800 tax calculation.

If you are not sure if your benefits are taxable, check them against our state benefits guide.

HMRC might not know about certain amounts you are entitled to claim as a deduction from your wages. Some common claims are for using your own car and business travel and other employment expenses.

You might be entitled to more allowances than HMRC have included on the calculation. For example:

• you might have become entitled to the Blind Person’s Allowance (which you do not have to be completely blind to claim)

• your spouse or civil partner might have become entitled to the Blind Person’s Allowance and they can transfer it to you if they are unable to use it themselves because they don’t have enough taxable income to set it against

• you might have turned 65 or 75 in the last tax year and be entitled to a higher age allowance

• you might have got married or registered a civil partnership and become entitled to Married Couple’s Allowance (but this only applies if one or both of you was born before 6 April 1935).

Equally, you might have lost entitlement to one or more of the above allowances, so your tax calculation could be wrong if HMRC have not taken account of this fact. The same could apply if you had an extra allowance included in your PAYE code, for example, certain expenses which were deductible against your employment income but would no longer be allowed after you stopped work or changed jobs.

Most people on low- to average earnings pay tax at the basic rate of 20% (our tax rates guide gives more information of the different tax ‘bands’ depending on your level of income). But if you are on a low income and have some bank or building society interest, you may be entitled to pay tax at a reduced rate of 10% on some or all of that interest. Our ‘Which tax rates apply to me?’ page gives some more information on how the 10% savings rate works.

h. Did you have an extra pay day in 2011/12?

Some employees might have paid too little tax in 2011/12 if they were paid 53 times in the year instead of the standard 52 weeks. If this happened to you, the ‘week 53 indicator’ should be ticked on your P60.

HMRC have issued some further guidance on this point.

Most people’s reaction to receiving a tax repayment is “thank you very much” followed by a swift trip to the bank to deposit the cheque! But before you bank the cheque, make sure the repayment is correct, because:

• The P800 is only an estimate, produced by HMRC’s computer. So the calculation is only as good as the data held on the computer.

• HMRC might have got something wrong, so you could have been repaid too much or not enough!

• If HMRC repay you too much and you don’t tell them, you could be charged a penalty if they think you were careless in not spotting it.

If you are due a repayment of less than £10, HMRC will give it to you only if you submit a claim – their computer will not automatically issue it.

Also, you might not get a calculation because according to HMRC’s computer, you are not due one. But you could be entitled to some extra allowances or reliefs, such as those in section 1 above. In that case, you will need to write to HMRC claiming your repayment.

Some examples of why you might be due a repayment and how to claim it can be found under Students – Tax refunds and Pensioners – Claiming a repayment. Example letters to help with tax repayments can be found in the first guide at the end of this article.

Earlier years’ repayments

If HMRC thought you were due tax back for any of the years 2008/09, 2009/10 or 2010/11, they have probably already sent it to you. But if not, it might be worth checking whether you are due anything back, particularly if you have discovered you have not claimed enough allowances or other tax reliefs in 2011/12 and the same applied to earlier years. Our first additional guide at the end of this article provides example letters which, adjusted for the relevant tax year(s), might help you to claim a repayment.

Repayment claims have time limits, so don’t delay. But do be careful – if it turns out that you have not paid enough tax in previous years, HMRC might be obliged to collect it if you prompt them to review your situation. So get your facts straight first.

Time limits for claiming repayments are:

Tax year 2008/09 (year ended 5 April 2009) - you must claim by 5 April 2013
Tax year 2009/10 (year ended 5 April 2010) - you must claim by 5 April 2014
Tax year 2010/11 (year ended 5 April 2011) - you must claim by 5 April 2015

In cases of ‘official error’, HMRC might agree to issue repayments years prior to 2008/09 under their ‘Extra-statutory Concession B41’. This says:

‘...repayments of tax will be made in respect of claims made outside the statutory time limit where an over-payment of tax has arisen because of an error by the Inland Revenue [now HMRC] or another Government Department, and where there is no dispute or doubt as to the facts.’

Historically, however, such cases have been rare and you would need to be able to show what went wrong and set this out in a letter to HMRC. Again, our first additional guide at the end of this article provides an example letter on ESC B41.

Most people will, unfortunately, have to pay the tax shown on their P800 calculation. If that is the case, you might have options as to how you pay it back – for example, spreading it over a period of more than one year.

But first, after checking that the figures on the calculation are correct, you should try your best to understand why you did not pay enough tax. This is important in working out whether you fall into one of the limited situations in which you can argue that you should not have to pay the bill.

It is possible that the underpayment has arisen due to your employer or pension payer not operating PAYE correctly. For example, they may not have applied the tax code that HMRC sent to them. If this is the case, HMRC should first seek the tax from the employer or pension payer, not from you.

Read our Employer or pension payer error guide (the second guide at the end of this article).

The underpayment could have arisen because HMRC have failed to make timely use of information about you which they have had in their possession. In such cases, you can consider asking HMRC to write off (that is, not to charge you) the tax under their Extra-Statutory Concession A19 (ESC A19).

But note that A19 usually only applies to underpayments for tax years ending more than 12 months ago - for example, you cannot normally use ESC A19 to ask for tax owing for 2011/12 to be written off if HMRC are advising you of the underpayment in, say, June 2012.

However, if HMRC have persistently got something wrong year after year, they do have the power to write the tax off for all years up to and including 2011/12. So if you underpaid tax in earlier tax years, and an underpayment in 2011/12 occurred for the same reasons, A19 might apply dependent upon your individual circumstances.

Read our Extra-Statutory Concession A19 guide (the third guide at the end of this article).

HMRC set themselves high standards and if they fail in maintaining those standards they may write off tax (but be aware that this is only likely to be in few cases).

If you are not entirely happy that HMRC have done everything correctly then you should read our Misleading HMRC information and complaints guide (the fourth guide at the end of this article).

If, after considering the above, you decide you are not within one of the limited circumstances of challenging your underpayment (or if you have made such a challenge and found you can take your case no further) you will have to agree with HMRC how the tax will be paid.

Again, we set out the considerations below.

a. How will the underpayment be collected?

If you owe under £3,000 and you have sufficient income from which tax can be deducted under PAYE in 2013/14, the underpayment will be included as a deduction from your allowances in 2013/14. HMRC will try to collect the underpayment in one year.

If it cannot be collected through your PAYE code, HMRC will contact you about arranging to pay.

If collection of the underpayment via your PAYE code or payment directly to HMRC will be difficult for you financially, contact HMRC as soon as possible to negotiate. You may be able to arrange to have the tax coded over a longer period or to pay in instalments, although there may well be an interest charge if you spread the payments.

The longest that HMRC are likely to spread the repayments over, either via your PAYE code or by instalments, is three years. The actual agreement you can make with them is likely to depend on your circumstances and how much you can afford to pay.

If you are on a low income, it is quite possible that the extra tax you are paying will affect your entitlement to means-tested benefits. You should contact JobCentre Plus, The Pension Service and/or your local authority to advise them of your reduced income due to the tax you are paying and ask how it affects your entitlement. Alternatively you can seek a benefits review from Citizens Advice.

For example, low-income pensioners who find that extra tax repayments cause financial hardship should investigate whether they are entitled to claim Pension Credit (or extra Pension Credit, for existing claimants), as entitlement to this benefit should be calculated on your after-tax income.

Note, however, that paying more income tax does not make any difference to your tax credits entitlement.

You will need to contact HMRC if:

• you think the calculation is wrong – as above, you must let HMRC know if you think they have repaid you too much

• you need to claim extra tax reliefs or allowances

• you need to ask for a full explanation if you do not understand the calculation.

HMRC’s helpline number is 0845 3000 627 (textphone for those with hearing or speech impairment, 0845 302 1408). When telephoning, have the calculation to hand as HMRC might ask you to confirm your National Insurance Number and answer some other questions before discussing it with you.

Always keep a record of:

• the date and time of your call

• the name of the person that you spoke to, and

• a note of what you said and what HMRC said to you.

Unfortunately, 0845 numbers may be very expensive to dial from a mobile phone. If you prefer, you can write to HMRC at the postal address on the calculation. HMRC might also ask you to write to them to claim extra reliefs or allowances.

Whenever you write to HMRC:

• include your National Insurance number and the HMRC reference taken from the P800

• include your full name and address

• either: explain what you think is wrong and why; explain what additional reliefs or allowances you think you are entitled to; or ask what figures you require an explanation of (example letters to help with this can be found in the fifth guide at the end of this article)
• sign and date the letter in ink

• keep a copy of the letter and any supporting information you send with it

• clearly state if any enclosed documentation is original and you wish it to be returned to you

• obtain proof of postage.

Independent advice can be sought from a tax professional. Indeed you should consider seeking such help if you think you have discovered a problem which means you have not been paying enough tax and which could mean you could face a bill and penalties.

But what if you are on a low income and cannot afford to pay for advice? There are two charities which could offer guidance on how to check the figures and explain how the calculations work. In some circumstances, they might also be able to help you to resolve queries directly with HMRC.

Tax Help for Older People is a charity offering free tax advice to older people (broadly, aged 60 or over) with a net household income of £17,000 or less.

TaxAid helps low-income taxpayers who cannot afford to pay a professional.

6. Calculations for earlier years (2010/11 and before)

HMRC are still issuing, in a dwindling number of cases, P800 calculations for earlier years – that is, for 2010/11 and before.

If it shows that you have not paid enough tax, check the year carefully. Since 6 April 2012, HMRC have not been able to go back further than 2008/09 unless the loss of tax was brought about by careless or deliberate action on your part. So any calculation for the year to 5 April 2008 (the 2007/08 tax year) is now likely to be out of time.

You can access our guidance on what to do about PAYE tax underpayments for earlier years using the following links:

PAYE underpayments 2011 – help for you
PAYE underpayments 2007 to 2010: help for you

7. Links to further guides and example letters

The guides are in two versions:

1. LITRG example letters to HMRC regarding tax repayments, 2011/12
2. LITRG employer or pension payer error guide, 2011/12
3. LITRG guide to Extra-statutory Concession A19, 2011/12
4. LITRG guide to complaining about misleading information from HMRC, 2011/12
5. Example letters regarding tax underpayments – adjustments and explanation requests, 2011/12

1. LITRG example letters to HMRC regarding tax repayments, 2011/12
2. LITRG employer or pension payer error guide 2011/12
3. LITRG guide to Extra-statutory Concession A19, 2011/12
4. LITRG guide to complaining about misleading information from HMRC, 2011/12
5. Example letters regarding tax underpayments – adjustments and explanation requests, 2011/12