Behind the headlines: HMRC’s latest Employer Bulletin and dynamic coding

Issue 65 of the Employer Bulletin was published on 11th April. The Bulletin is the main conduit of information for employers even though it’s only published six times a year. If you don’t normally receive it direct to your inbox, sign up here.

Since the last Bulletin in February we’ve had a Budget and the start of a new tax year, so there was plenty for HMRC to cover. Read on to find out more about dynamic coding – the fourth focus of this series of blogs.

Dynamic coding

HMRC estimate that 6m of last year’s 8m cohort who received a P800 reconciliation after year end (their under or overpayment notice) will pay less tax in-year because of dynamic coding, also called PAYE refresh, as their code is adjusted more frequently to reflect their total income. That’s good news if HMRC can improve data quality in their systems and start to leverage the benefits of RTI after four years of receiving employer data. As employers, we’re much more likely to hear from the employees who see more draconian tax code reductions in-year, for example to recover underpayments from 16/17 at the same time as those for 15/16 are being recovered. We’re promised a mechanism to query codes and also hardship mitigation, but there’s little detail about this and yet dynamic coding starts in May 2017. We do know that HMRC will not amend a code for a change that leads to £10 or less of a change in the tax to be collected for the year.

It’s vital to spread the word that activating your PTA means you can see, and challenge, incorrect tax codes as employers will still, understandably, not have any granular breakdown of the employee’s tax code. There is more information about dynamic coding here and there are two YouTube videos too (oddly, the link in the bulletin is not to the videos as it indicates, just to .Gov guidance on code make-up). Please make sure employees don’t follow the instruction in the video to inform HMRC about benefits in kind via their PTA if their benefits are payrolled, as this will lead to an incorrect coding of the benefit that they are already paying for via PAYE!