'Tax code error has led to even more incompetence'

Taxpayers are angry and frustrated as HM Revenue & Customs fails to deal with problems created by its mistake.

When Independent reader Jeffrey Bradshaw opened his April payslip it was £500 short. The money had been taken by the taxman as a direct result of the tax codes cock-up earlier this year, when HM Revenue & Customs sent out the wrong tax codes to tens of thousands of people.

"I received not one, but two, incorrect tax coding notices," says Jeffrey of Leicestershire. "I immediately rang the HMRC helpline and explained everything and followed up with a letter." He eventually received the correct notice of tax coding, so was surprised to discover in April that the wrong coding had been applied to his salary.

"I tackled HMRC again, but their response was 'Sorry, we sent you out the correct notice but we forgot to notify your employer.' What utter incompetence, on top of previous incompetence!" Because his firm had split into two separate companies a few years ago, many of his colleagues were also affected by the problem, with most ending up about £120 worse off in their April salaries.

"Now I and my colleagues (about 30 of us) are waiting to see if we get all of the money back in May's salary, or if they'll try to pay it back over the next 11 salary payments," says Jeffrey. "Either way, I have my letter of complaint ready! I have savings to draw on and so I'm not caused much hardship, but some of my lower-paid colleagues live very much hand-to-mouth and have to budget wisely. It has forced some of them to rely even more on their credit cards, putting them in even more debt!"

Jeffrey and his colleagues are not alone. The Independent has been inundated with readers' stories of tax code cock-ups and Revenue incompetence when dealing with the issue. Pensioner Peter Monk worked out that the two wrong tax codes he was sent – for his three different pensions – would cost him around £1,100 in unnecessary tax. So he called the telephone number given on the forms.

"I discovered that the wrong number had been printed on the letters. That shown was for the office which deals only with child tax credits," says Peter. His subsequent attempts to use the right HMRC telephone helpline resulted in being cut off many times before he finally spoke to a real person – an experience echoed by most of the readers who contacted us.

"The person very quickly confirmed my calculations and agreed to re-code the two wrongly coded items, but there was no explanation as to how such a mistake was made. The new codes reduce my tax liability to roughly what I had calculated on the back of an envelope, but were not transmitted to the pension providers in time for the new tax year. As a result, I am £100 short of income this month. I know it will be rectified next month but is this the way to run the country's affairs?"

Time after time readers report the frustration of trying to speak to someone at HMRC to put things right about their tax code. "I spent three weeks trying to get through, beginning at 8 o'clock each morning and then at various times during the day," says Robert Oliver of Essex. "I finally managed to get through at 7:50 am on a Friday morning – 10 minutes before the line is officially open."

"The system seems to be in meltdown with too many tax offices apparently dealing with people's tax affairs at random. resulting in a true cock-up and a lot of worry for people like myself," says R J Patterson of Cumbria, who has been forced to deal with a variety of different tax offices while trying to sort out tax-code problems relating to a pension and Gift Aid.

Zoe Ford of East Sussex has been trying to inform the tax authorities about a change in her circumstances so that she can be given a new tax code, but has had no joy. "I have tried ringing HMRC since the end of March, to no avail," she says. "On 7 April I wrote a letter and have had no reply or acknowledgement of receipt."

And so it goes on. Other readers say: "I called six or seven times a day for three days before finally getting through"; or, "I am infuriated by the fact that, if the lines are overloaded, HMRC does not allow you to queue, but simply cuts you off"; and "They've shut themselves off from the public they're supposed to serve."

One reader from London says things are going to get worse as tax offices are shut and the work handed over to outside agencies. "Tax offices are being shut to capitalise on income from the sale of buildings, and thousands of experienced HMRC staff are being made redundant," says the reader, who asked not to be named. "Agency workers will be contracted if and when necessary – with predictable results. It's bonkers!"

It's a shocking state of affairs but what has caused it? It stems back to the introduction of a new computer system at HMRC, known as NPS (which stands for National Insurance & PAYE Service). Instead of streamlining the system, it led to tens of thousands of people being sent the wrong tax code in February for the current 2010-11 tax year. Tax codes are important as they tell an employer or pension company how much tax to take from a salary or pension. The idea is to spread personal allowances equally over 12 months as well as taking into account tax on other income and perks.

The new NPS computer system is not to blame for the problems, according to the Revenue. Instead, it says the cock-ups were caused by incorrect data stored in the old system, which was then transferred across. That means that the problems should be a one-off and should not be repeated next year.

"We apologise for any inconvenience caused; however, many issues can be resolved simply by consulting the guidance in the leaflet enclosed with the tax code, or by referring to the tax-code section on our website," says an HMRC spokesman. To those who have found it impossible to get through to the Revenue, he says: "We are experiencing a higher level of demand than usual because of the well-publicised issues around PAYE notices of coding. There is a much better chance of getting through first time by calling later in the day or towards the end of the week, when call volumes are generally lower."

In other words, there's nothing they can do while call levels are high. Is that good enough? No, says Anita Monteith of The Institute of Chartered Accountants in England and Wales.

"Our members say HMRC needs to train its staff better. Better-trained staff would reduce the number of call- backs, which would quickly help to get rid of the backlog of calls."

She suggests people call outside peak hours. "Try and avoid obviously busy times such as the middle of the day, and be persistent," she says. Meanwhile we'll keep monitoring the situation and report back.

Checking your code

* What happens if you've been sent the wrong tax code? You could be overpaying or underpaying the tax you owe. If the former, you'll find yourself in a battle with HMRC to get your cash repaid. If the latter, you could be landed with a demand for cash you didn't know you owed.

Your tax code depends on how much tax-free income you are allowed. For example, "L" is used for those eligible for the basic personal allowance of £6,475, and it is also used for "emergency" tax codes. "P" is for people aged 65 to 74 and eligible for the full personal allowance while "Y" is for people aged 75 or over.

"If you think your tax code is wrong, or you don't understand it, you need to contact the tax office on your coding notice straight away," advises Anita Monteith, technical manager in the tax faculty at the Institute of Chartered Accountants in England and Wales. "Alternatively speak to your employer or pension payer or ask a chartered accountant to help."

* At www.hmrc.gov.uk/incometax/ codes-basics.htm you can check your tax code.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

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