Help please - PAYE Coding Notice - effect on tax return

Model500

I hope someone can point me in the right direction here. I have a client who is both employed under PAYE (higher tax payer) and from 2014/15 onwards also self-employed in a partnership (basic sole-trader type set up).

The partnership made a loss of £7k in first year of which 50% is attributed to my client. Therefore I was pretty much expecting there to be no tax owing for my client for 14/15.

However, the tax liability for the year is £885.

The client has since provided me with a copy of a PAYE coding notice for 14/15 which increased his personal allowance by £2,038 for the tax year. The notes on the PAYE notice state this is to do with 'employment expenses'.

The client has stated he hasn't incurred any employment related expenses in 14/15. The only thing I've had to enter is some private medical care £419 from his P11D.

Effectively then the tax liability amount is the tax on the £2,038 relief my client has (incorrectly?) received via PAYE in 14/15.

Now this is where I'm confused. Should I be entering the £2,038 on the tax return under 'employment expenses' or am I correct in ignoring it completely?

I'm due to speak with my client about this tomorrow lunchtime and just want to be certain before advising.

Any help much appreciated.

Rozzi Rainbow

Adjustments in tax codes are only HMRC's estimate of what will happen - you still have to declare what has actually happened on the tax return. If your client says he hasn't incurred any employment expenses, then you shouldn't enter any, and it does indeed look like he has incorrectly received the additional allowance.

It may be worth calling HMRC to see if they can shed any light on why it is there (they may not of course!). It could just be they thought they were being "helpful" by including them if he's had the expenses in previous years and they assumed they'd carry through. (They did that a couple of years ago for one of our clients who made a one off substantial contribution to her personal pension, we claimed the relief on her tax return, they then changed her tax code to give her relief for the next year, she then had to pay the tax back when she didn't contribute anywhere near as much to her pension!!)

Model500

Thank you so much Rozzi, that is much appreciated. I had really started to doubt myself for a moment. Merry Christmas :-).

Rozzi Rainbow

Just had another thought - can you offset the share of the partnership loss against his other income to reduce his tax liability or even generate a refund?

Model500

He actually got back to me with some mileage racked up for his employment for which he was paid under the HMRC going rate. That reduced the liability to around £300. I requested HMRC take it via his PAYE during 16-17. He's happy enough :-) Thanks again for your help.