PAYE Refresh: HMRC plans to introduce changes to how employees pay their tax

Just because there’s an election on the cards doesn’t mean normal life grinds to a halt. Business carries on as usual, and so do changes at HM Revenues & Customs. What’s the latest change in the pipeline from HMRC? Well, from 31st May, HM Revenue & Customs is about to make changes to the way employers deduct tax from employees’ pay, all under the umbrella of its Making Tax Digital project.

So what exactly is the latest change? Well, the proposed changes are part of the PAYE Refresh project. The changes, also referred to as ‘dynamic coding’, were outlined in the consultation document: ‘Making Tax Digital: Transforming the tax system through better use of information.’

What is the intention behind the changes? Well, it appears to be to make better and more informed use of the third-party information, like payroll data and bank interest, which is already submitted to HMRC using Real Time Information (RTI). HMRC believes if it uses this employment and pension data reported under Real Time Information (RTI) to update tax codes more regularly, more PAYE taxpayers will pay the correct amount of tax in year and that the number of PAYE under and overpayments (P800s) will reduce.

What’s so different about this latest change? Well, although sending earnings data to HMRC under RTI has been running for over four years, it has not as yet been used in real time to effect PAYE coding changes. Why does HMRC feel the need to introduce these changes? The simple answer is that since the introduction of the use of RTI, there has been a significant rise in the number of year-end P800s. At the end of the last financial year, the number of P800s reached 8 million, and according to HMRC two-thirds of those involved a tax repayment to taxpayers who had not earned enough over the tax year to pay tax. Under PAYE Refresh those taxpayers won’t have to wait for an end of year refund.

What about taxpayers who change jobs or pension providers? Will they not be overwhelmed by notifications from HM Revenues & Customs? Well, possibly: though HMRC has said that there will be no more than one code change per month per taxpayer. What about the other taxpayers? How will they see immediate benefits from PAYE Refresh? Well, these taxpayers will see quicker and more significant tax deductions, as HMRC will attempt to recover all the tax due by the end of the current tax year, rather than carrying some over to be coded out in a later year.

What will the changes mean for employers and employees? Well, the net effect of these changes is that tax agents and employers will receive more frequent coding changes. HMRC has designed a briefing pack for employers but this breakdown of the PAYE code won’t be provided to the tax agent or employer, so employees are encouraged to activate and use their Personal Tax Account (PTA) to see the how the PAYE code is made-up.

If you would like more information about HMRC’s latest PAYE changes, or are worried how the changes might impact your business, then contact Steven Glicher accountants. Call 0161 485 8007 or email

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