Checking your Tax Code in an IVA
Keeping your tax code up to date is necessary to ensure you take home the correct amount of money and pay the right level of tax. It also ensures that your IVA payments are fair and accurate during your repayment term.
Why do I need to have my tax code checked?
Your tax code tells your employer or pension provider how much tax they must take off you. In many cases, having the wrong tax code results in too much income tax being taken off your wages or pension. It’s important you are on the correct tax code, so you earn and pay your legal entitlement.
Why does my tax code need to be checked in an IVA?
If you are in an IVA, your provider has a duty to your creditors to investigate all sources of additional funds that can be used to reduce the amount you owe them, including money owed by HMRC.
Under the terms of an IVA with PayPlan, you are required to comply with any reasonable request made by your IVA supervisor, which could include checking over your tax payments to see whether you have paid the correct amount, or whether your creditors are entitled to further payments.
Will I automatically be given the right tax code?
Most taxpayers assume HMRC gives them the right tax code and/or their employer or pension provider would know if they were paying the wrong amount of tax. Neither of these assumptions is correct.
Employers and pension providers take the tax HMRC tells them to take using your tax code. If the tax code is wrong, they automatically take the wrong amount. Therefore, it’s important for all parties that your tax code is kept up to date.
Am I responsible for checking my tax code?
HMRC rules mean you are legally responsible for identifying any mistakes or inaccuracies in your last 4 years of tax codes. If you find any, you must submit the appropriate paperwork to HMRC so they may correct the errors, before they will pay the money back.
If you are in an IVA, we will ask you to cooperate with the Tax Refund Company and provide them with pay slips so they can check your previous tax codes on our behalf. Checking if you have been given the right tax codes and recovering the correct amount of money requires a good understanding of the PAYE tax rules and is not something that can be done properly by simply contacting HMRC directly.
Who are the Tax Refund Company?
The Tax Refund Company is an independent firm who will check your tax codes with HMRC on your behalf. They are an associate member of the UK Employers Assistance Professionals (EAP) Association and have been used by over 500 organisations across the UK since 1994.
Does it cost me anything to use the Tax Refund Company?
Your creditors will cover all the costs of the work carried out by the Tax Refund Company out of any money they receive from past tax years. There will be nothing for you to pay.
Is a tax refund considered a windfall in an IVA?
No, a tax refund is not considered a windfall. In most IVA proposals, it’s actually classed as an asset and this is why the full amount has to be paid into your IVA arrangement.
However, if we find you have paid too much tax in the current tax year and it is refunded by HMRC in the same tax year, it will be paid directly to you and you may keep it.
If I am due a tax refund, will all of this have to go towards my IVA?
Money owed from last 4 years
Tax that has been overpaid in the past 4 tax years can be recovered from HMRC. If you are in an Individual Voluntary Arrangement and have overpaid on tax, any money HMRC owes you from the last 4 years will be classed as an asset of agreement. This means your creditors are legally entitled to these funds which will go towards paying back your debts.
Money owed from the current tax year
If we find you are paying too much tax in the current tax year, HMRC will send you the money or pay it into your wages or salary and you may keep it. However, previous years’ tax refunds will go to your creditors and towards paying off your debts.
Where can I get advice on my tax?
If you have any questions about tax and your IVA, please call the PayPlan Tax Review Helpline on 0161 968 7433.