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October 2014

HMRC RTI year end reconciliation fails thousands of taxpayers

HMRC admitted on 9 October 2014 that thousands of people may have received incorrect tax calculations for the year 2013-14 because their annual reconciliation of PAYE accounts has failed to accurately determine employees' tax positions.

The number of people affected by the problem is currently unknown, but may be several thousands as some large employers were affected.

5.5 million P800 calculations were issued during the first annual reconciliation process under the RTI regime, some of which showed an incorrect underpayment of overpayment of tax which did not match that shown on the employee's P60.  Some employees will have incorrectly been asked to repay tax which they do not in fact owe, while others may have cashed refund cheques from the Revenue which will subsequently need to be paid back.

Duplicated employment records were once more highlighted as a key cause of the incorrect tax data.

AccountingWEB gives the most common reasons for the incorrect tax calculations as follows:

  • An incorrect overpayment is created as the 2013-14 reconcilation is based upon the Full Payment Submission (FPS) up to month 11 although the employment continued all year.
  • Where the year to date figures supplied are incorrect, for example where an employer reference changed in-year and the previous pay and tax is incorrectly included in the 'year to date' (YTD) totals.
  • We have received an 'earlier year update' (EYU) and this is yet to be processed to the account.
  • There is duplicate employment (often caused by differences in works numbers and other changes throughout the year).


HMRC says that they are 'urgently investigating' the incorrect P800s and aim to resolve the problems and send a revised notice to affected taxpayers over the next 6-8 weeks.  The department also says that employees who have received incorrect P800s will not be affected by tax code errors because they will issue corrected notices before Annual Coding takes place.

HMRC apologised for the error, but once again attempted to put blame for RTI problems firmly on employers (and by association therefore on the agents who handle payroll for those employers), saying 'the majority of errors have happened because an employer failed to make a final payment statement for the 2013/14 tax year, meaning our records were incomplete despite reminders that these submissions had to be made.'  This is likely to cause annoyance to those employers and their payroll agents who have worked hard to make the RTI system, with its strict data quality and reporting requirements function, become effectively unpaid HMRC tax collection officers.

If you would like to discuss this then please do not hesitate to contact us on 024 7651 8555 or 0121 711 2468.