HMRC tolerance on tax calculations

A tolerance has been used since the introduction of PAYE to accommodate the rounding up and down that automatically happens when the tax tables are used to calculate the deductions.

HMRC have applied a tolerance of £50 for at least the last two decades. This meant that when it checked the tax deducted for taxpayers at the end of each tax year, it would not take any action in respect of underpayments of tax less than £50.

In September 2010 the tolerance was temporarily increased to £300, covering the years 2007/08, 2008/09 and 2009/10. This was in the wake of the problems arising from the reconciliations carried out for those years using NPS.

The tolerance for 2010/11 will revert to £50.

PAYE Tax Coding

HMRC’s new National Insurance and PAYE system enables HMRC to use self assessment (SA) tax return information to update PAYE codes automatically. Thus, as an SA return is filed for 2010/11 the taxpayer’s PAYE code for 2011/2012 will be updated automatically to include other income (such as rental income or interest) and tax relief for payments (such as Gift Aid) based on the amounts in that return.

However, if a taxpayer does not want their other income/reliefs included in the PAYE code then an X is needed in Box 3 on page TR5 of the SA return.

If a taxpayer does want other income/reliefs included in their codes but the amount and/or type have changed from 2011/12, then this further information should be included in the white space at Box 19 of the SA return.

Generally no more than £10,000 of income will be included in the code unless a specific request is made to HMRC. This is subject, however, to the current restrictions that limit the amount included in the code to 50% of the gross pay or where the inclusion of the income would more than double the taxpayer’s liability.

It should be noted that if other income /reliefs were included in the 2010/11 code then these estimates will be automatically carried forward to the 2011/12 code unless HMRC is advised otherwise or until the 2010/11 return is submitted.

Non residents

HMRC has issued its draft guidance on “non-residence and full time work abroad” which is to be included in next update of HMRC6 Residence, Domicile and the Remittance Basis

HMRC has indicated that when assessing whether an individual is on a full-time contract of employment abroad, it will not generally challenge the claim to non-residence if the days worked in the UK are 10 days or fewer. Where those individuals work more than 10 days in the UK in a tax year then the position will depend on their particular circumstances.

A non-resident individual will pay tax on any employment duties which they carry out in the UK unless those duties are “merely incidental” to an employment abroad.