Senior Tax Manager Lucy Orrow looks at Recent Changes to Tax Codes

Lucy Orrow Tax Accountant Essex Lambert ChapmanHM Revenue & Customs have changed the way in which they adjust tax codes from 2 July 2017.

Previously, if an underpayment was calculated during a tax year, HM Revenue & Customs would make an adjustment to the following year’s tax code.  This created a restriction which could also be impacted by the actual adjustment in the year.

For example new company car benefit in kind:

  • New car in 2016/17 – HMRC calculate underpayment of £1,000
  • Adjust tax code for 2017/18 by £1,000
  • Also adjust tax code for full company car benefit in 2017/18 of £5,000, meaning a total adjustment of £6,000 in one year.

Under the new system, an in-year adjustment (IYA) can be made once the in year restriction (IYR) has been calculated.  This will ensure that the correct amount of tax is deducted in the year it is due.

When a trigger occurs, such as a new benefit in kind being provided, HM Revenue & Customs will run a calculation to estimate the tax due for the year and the dynamic coding will be adjusted accordingly.  This will be issued to the employer to be used in the next payroll.

There is an element of participation required to ensure IYAs can be made.  This includes the employee updating information on their personal tax account, to include changes to benefits or income.  Agents can also report changes via the Agent Dedicated Helpline.  Either of these will help to minimise adjustments required after the year end.

If you need any assistance in this area, please get in touch with the Lambert Chapman team.

August 2017


The views expressed in this article are the personal views of the Author and other professionals may express different views. They may not be the views of Lambert Chapman LLP. The material in the article cannot and should not be considered as exhaustive. Professional advice should be sought in connection with any of the issues contained in the article and the implementation of any actions.

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