The perils of complex tax affairs

The perils of complex tax affairs

Over the last few weeks, I have been asked the best way to check on HMRC’s tax calculations for private individuals. Saturday brought a front page article in the Telegraph, (January 17, 2015), and further details in the Your Money section, which suggested in quite forceful terms that HM Revenue & Customs would be asking millions of taxpayers for more money in the near future.

To sum up the issue, joined up government is not a reality, more a distant aspiration with some nasty consequences to tax payers who do not fit the norm. As tax collection and assessment is divided into geographical areas and specialisms, there is ample scope for error, misinformation, duplication and omission, with the onus to provide accurate information forced onto the tax payer. The Telegraph told the story of Adrian Davis, who was chased by 6 different HMRC offices for £5,000 he did not owe and outlined details for many others in a similar predicament. (See the original article at

Last week one of my clients asked how best she could check her tax assessment, as she was afraid of falling into arrears with her tax. For her, like so many others with income taxed at source, paying insufficient tax should be almost impossible, but HMRC place the onus on checking tax codes on the taxpayer, whether or not they are equipped to do so.

Working out your tax bill on the back of an envelope is a valuable exercise in checking reasonableness, so you can either accept the HMRC position, ask for clarification or engage a tax specialist to do your calculations or change things around to minimise your tax bill.

For my client, her income came from the State Pension, the Teacher’s Pension Scheme, a small annuity from Scottish Widows and a trivial amount from bank deposit accounts. From her annual statements of taxable income, (P60s), we came up with a total income of about £14,000. From HMRC we found her notice of coding which gave total personal allowances of £10,660, (freepay), so her total tax bill should be about £668 in the year. This agreed almost to the penny with the amount collected, so all was well with the world!

There is a tax calculator on the web site that is fairly easy to use; By contrast the HMRC tax checker is not so user friendly, making too many people a ‘special case’.

For pensioners with multiple annuities, Forces pensions or the working with income from multiple sources, there is much scope for things to go wrong, so the price of tax sanity is constant vigilance. Follow our checklist to get your finances on a clear footing:

  1. Find out your taxable allowance for the year. The HMRC might send you a notice of coding, if you are working it will be on your payslip; if you have multiple employments, add together your tax codes. For 2014/15 the standard tax code is 1000, for 2015/16 it will be 1060. If you are over 65, you will get a higher rate and over 75, slightly higher still.

  2. Your code may be altered by underpayments in previous years, a company car, professional expenses, allowances for personal protective equipment or some other item, but you should know about it already. If you have a Notice of Coding it will show a calculation – if you believe it to be wrong, too high or too low, you MUST notify HMRC as it is your problem!

  3. Collect together your P60s, (statements of taxable income), remembering all of your income sources. You cannot ignore something if you believe it to be trivial, HMRC may not agree with you.

  4. For income not covered by a P60, (lettings, private loans, other trade or business), use the net taxable income figure.

  5. Compare your total income with your personal tax code, to see the amount liable to tax. As a general rule, if you and HMRC are using the same tax code and same total income, your tax bill will be calculated and collected correctly. Where the tax codes disagree or the total income are different is where problems occur.

  6. As a taxpayer it is your responsibility to check your tax code and complete a tax return if necessary. If you have more than three income sources, you would be well advised to complete a tax return to tie all of the threads together. Just because the HMRC have not asked you to file a return does not mean you do not have to.

  7. Remember, not all income sources are taxable! My client had bond and ISA income which is outside scope. Good financial advice at an early stage will maximise your income and minimise your tax bill!

If you would like to know more about how we can help you plan and realise your financial goals then contact us at or call us on 01223 792 196.

The information contained is for guidance only and does not constitute financial advice. It is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. Accordingly no responsibility can be assumed by Martin-Redman Partners its officers or employees, for any loss in connection with the content hereof and any such action or inaction.