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Sam
Sam, Accountant
Category: UK Tax
Satisfied Customers: 12786
Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Capital Gains, CIS ask for Sam Tax
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I have a huge underpayment of PAYE for tax year 10-11. I joined

Resolved Question:

I have a huge underpayment of PAYE for tax year 10-11. I joined my current employer in October 2010 and handed my P45 to an HR professional who handled my arrival. This person did not pass it to the payroll department, who, despite being aware of my salary level etc., deducted PAYE at only the BR level (20%) for the rest of tax year instead of the highter rate (50%). I was not asked to complete a P46. When I discovered that my net take home pay each month was more than I expected I raised the matter with the HR professional to whom I had handed the P45. She did not reply for weeks but eventaully admitted that she had just put the P45 in a file and forgotten about it. The company that usually does my tax return has just done my return for 10-11 and says I have to pay the underpayment of PAYE. However, I believe that the employer is liable for this in the first instance and HMRC must give a direction for the liability to transfer to me. Can you advise? Many thanks.
Submitted: 2 years ago.
Category: UK Tax
Expert:  Tony Tax replied 2 years ago.
Hi.

When did you query your tax deductions?
Expert:  Tony Tax replied 2 years ago.
I'm going to have to opt out of this question as I have to go out. Hopefully, somebody else will answer your question. My apologies.
Customer: replied 2 years ago.

Hi

 

OK I got your opt out message. Here is the answer to your question anyway. Can you pass it on to someone else?

 

I think after about 2-3 months. I realised I was receiving more than I was expecting as net income, but this employer had head-hunted me and had agreed to pay a "signing" bonus, so I though that might account for it, plus they had agreed to pay an annual contractual bonus that I thought they must be spreading on a monthly basis. I first mentioned it to my immediate superior when I recieved my first salary. He was ambivalent and seemed pleased (relieved even) that I was being paid at all. During this period I recived no paysilps. The company failed even to post them to me. I eventually received a whole bunch of payslips in one go and it was only then I realised that they were only applying a BR rate. I then wrote to the HR representative who had assisted with my arrival and didn't reply for weeks. When I finally spoke to this person they also seemed completely relaxed when they revealed their mistake of burying my P45 in a file and forgetting about it. I made this person aware that I was having too little tax deducted and that my tax for the year 10-11 would be well and truly messed up. They seemed ambivalent and fatalistic. I said I hoped they would not get into trouble about this, but they are a senior person and seemed confident that they wouldn't.

 

What amazes me is why even without a P45 the payroll office continued to use BR for the rest of the tax year whilst obvioulsy well aware of my salary, which puts me in the 50% bracket. And why didn't they give me a P46 to complete if they didn't have my P45?

 

Incidentally, all is well for the 11-12 tax year and I am being taxed as I would expect with a "K" code. I think its K113.

 

Hope this helps and look forward to your advice.

 

Kind regards

 

Mark

Expert:  Sam replied 2 years ago.

Hi

 

Thanks for your posting and as Tonytax could nor respond, I just have one more question.

 

Did you contact HMRC at any time after realising that the wrong tax code was being applied?

 

Thanks


Sam

Customer: replied 2 years ago.

Hi Sam

 

No I didn't. I never thought to do that as I was communicating with the company.

 

Regards

 

Mark

Expert:  Sam replied 2 years ago.

Hi

 

Thanks for your response

 

You do not have scope under ESC A19 to have this amount written off, due to HMRC error, but as you did supply your P45, and did not receive any payslips for some time, then I would urge you to write to HMRC and appeal the amount on the basis of Employer Error - as they failed to act in good faith with you having provided the P45 and not supplying you with a P46 in the absence of payroll not receiving the P45 (as it had been filed away)

 

There is s small chance that HMRC will argue that you should have contacted them to remedy this situation, especially as you were aware that the tax being deducted was incorrect, and was not enough, so for now appeal on the basis that you gave the HR your P45, and as the payslips were late, as soon as you realised that something was wrong, you attempted to take this up with the employer to no avail.

 

 

Thanks


Sam

Customer: replied 2 years ago.

Hi Sam

 

Thanks for this. I realise it is not clear from my original question, but I have not yet in fact submitted my tax return to HMRC. All that has happened so far is that the company that do my return each year have prepared it and of course identified and quantified the underpayment. They have sent it to me for signature, saying that I should pay the shortfall by 31st January 2012. However, from my own research I discovered that for this kind of employer error, HMRC regulations provide that they will look to the employer in the first instance to make good the underpayment. The employer may then seek a direction from HMRC to transfer the liability to the employee if they feel they acted in good faith. If I am correct in this, then the advice from the company that prepared my return is incorrect and in fact the correct course would be for me to submit my return with an "Employer Error" letter rather than a cheque for the PAYE shortfall.

 

I'd appreciate your clarification of the best course of action in these circumstances.

 

Kind regards

 

Mark

Expert:  Sam replied 2 years ago.

Hi

 

Thanks for your response and further information.

 

No - HMRC will look to you in the first instance to make good the payment, and then you have to appeal this on the basis that the employer is culpable.

 

So get the return filed, await the statement and demand for tax, and then appeal on the basis that the employer is liable due to their failure to use your P45 or offer you a P46.
However, I must advise the fact that your return is being filed so close to the deadline of 31/01/2012, does not give you much time to get HMRC to consider the appeal and make a decision before the 31/01/2012 payment due date, and if the tax is deemed to be your to pay, and this decision falls after 31/01/2012, then you will find this will result in interest being charged for late payment.

 

 

So ensure that return is filed as a matter of urgency, as I am sure you can appreciate, aside from there only being 6 weeks to the deadline, Christmas and New Year see a reduction of staff in the HMRC offices to review the appeal.

 

Thanks

 

Sam

Customer: replied 2 years ago.

Hi Sam

 

Could you please read below from the HMRC website and advise further?

http://www.hmrc.gov.uk/manuals/pommanual/paye90001.htm

PAYE90001 - Reconcile individual: underpayments: introduction

PAYE underpayments arise if the individual has not paid enough tax during the year. This could be because the tax code was reduced during the year or the wrong tax code was used.

Most PAYE underpayments can usually be included as a restriction in the tax code for the next complete year. However there are circumstances where this is not possible, for example, underpayments of £3000 or over (whether for one or more years) and / or underpayments of less than £3000 that, due to circumstances particular to the case, cannot be collected through the tax code (PAYE12080).

An underpayment of any amount that arises through the employer failing to deduct the correct amount of tax from earnings (perhaps by not using the correct code) must be recovered in the first instance from the employer. The underpayment may only be recovered from the individual if a PAYE direction is made centrally by either the PAYE Errors Unit or a PAYE Direction Unit. A PAYE direction effectively transfers liability for tax under-deducted from the employer to the employee. Further information on PAYE direction is available at PAYE90020.

Also HMRC Guidelines Employer Further Guide to PAYE and NICs - CWG2(2011) states on page 18:

 

"As a general rule, you as the employer have to pay

any underpayment of PAYE arising from a mistake

in deductions. However, a direction can be made

for your employee to pay an underpayment if we

are satisfied that you took reasonable care and that

the underpayment arose from an error made in good faith".

 

Are you able to comment further please?

 

Best regards

 

Mark

 

 

Expert:  Sam replied 2 years ago.

Hi Mark

 

Thanks for your response

 

Yes this is the basis on which you can apply for HMRC to hold the employer responsible, but this cannot be done until

1) the tax charge has arisen and

2) the tax charge has been advised to you

 

Then you appeal as per the instructions.

 

Thanks

 

Sam

 

 

 

 

Sam, Accountant
Category: UK Tax
Satisfied Customers: 12786
Experience: 26 HMRC expertise, PAYE, Self Assessment ,Residency, Capital Gains, CIS ask for Sam Tax
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