More worrying details have come to light regarding the HMRC’s tax code blunder.

In a report by the BBC, revenue employees stated that the new system, in numerous cases, cannot be relied upon to generate the correct tax codes and the general feeling is that this situation is getting worse, not better.

An employee, who wished to remain anonymous, claimed that the testing of the new system was inadequate – it stopped short of issuing new tax codes, the point at which the system has gone wrong.

The Revenue denied this claim. It said: “Annual coding was subjected to rigorous testing, with approximately 10,000 cases, covering in excess of 500-plus different scenarios. The data was tested as live and showed the system was working correctly. HMRC did not issue tax codes but checked the data and ensured that the correct code would have been issued to customers.”

Despite the HMRC’s claims, small businesses must be vigilant in ensuring tax codes are correct to avoid unnecessary penalties.

In addition to potentially suffering unnecessary charges, the changes in the system will effect small businesses in a number of ways: Companies with fewer than 50 staff no longer have a PAYE paper filing option. With the PAYE deadline on 19 May, employers must register with HMRC to file online – HMRC’s is supplying free software in order for small businesses to file their employee data securely.

Stephen Banyard, director of the business customer unit at HMRC, says: ‘Major changes to PAYE filing and payment are only a matter of weeks away, so employers need to make sure they’re well prepared for them. We will be writing to affected employers over the coming weeks.’

In addition to changes in filing, from May 2010, the tax office is also introducing new penalties for late payment of PAYE. This includes income tax, national insurance contributions (NICs), student loan deductions and construction industry scheme deductions.

Employers who think they may have difficulty paying should call HMRC’s Business Payment Support Service on 0845 302 1435. If HMRC agrees time to pay, it will not charge late payment penalties. More information on the new penalties can be found on the HMRC website, www.hmrc.gov.uk.

If you are worried about tax coding issues or changes to the new system, join me for my regular question and answer session on Twitter, next Tuesday at 11am.