The PAYE tolerance for adjustments to tax has decreased from £300 back to £50.
A tolerance is used by HMRC for PAYE in order to accommodate the rounding up and down that automatically happens when the tax tables are used to calculate weekly/monthly tax deductions.
HMRC has 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.
HMRC says that work to clear those years is largely complete, and it will be able to manage the end-ofyear reconciliation for 2010/11 without any increased tolerance. The tolerance for 2010/11 will revert to £50.
This means that where an underpayment of tax of more than £49.99 arises for the year 2010/11, HMRC will send the taxpayer a tax calculation.
As reported in the ICAEW's Taxline for May 2011.
