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Employer failed to make student loan deductions

Employer failed to make student loan deductions

I have recently taken on a new client who is starting a new business, but has hitherto been employed. She started work in 2005, and has more or less never had the correct code, and has never completed a tax return. Needless to say, she has overpaid tax in several years. I am therefore working backwards to try to resolve this. I submitted information re 2009/10 and HMRC asked for a tax return, and voluntarily seemed to look at 2008/09, and sent a refund. The problem is that my client's employer for part of 2008/09 and the first part of 2009/10 did not make any student loan deductions, despite the P45 from the previous employer checking the box, and checking the box themselves on the P45 they produced. My client therefore faces a catch up on the student loan repayments of about £2,000 even after the tax refunds and can't afford it, having just given up her job to pursue the new business. We haven't told HMRC or the student loans company yet. My client naturally feels aggrieved with her old employer, but I cannot see that contacting them is likely to get far; they will argue that my client has not suffered any loss. Are HMRC likely to be sympathetic and allow time to pay? Does anyone have any suggestions as to how to proceed?

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03rd Jul 2011 17:40

Employers problem

Isn't it the employers problem?

The employer has to pay HMRC the student loan money that should have been deducted.

Shouldn't they negotiate with her for time to pay the student loan they should have deducted from her? I can't see them being successful in any court case if they demand quick repayment. 

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04th Jul 2011 10:18

Yes, but ...

Are you claiming that your new client did not realise every time she got a payslip that her old employer was not deducting her student loan repayments and did not  take it up with them at the time?  It is all very well that she now "naturally feels aggrieved with her old employer", but perhaps she did realise and was grateful at the time.

At the end of the day, it is her student loan and her liability to repay it.

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04th Jul 2011 10:33

I usually always agree with you, but

"At the end of the day, it is her student loan and her liability to repay it."

I know what you mean but she should only repay it via her employer if she is employed but in this case the employer made a mistake.

 

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04th Jul 2011 11:07

Yes, but ...

If you look at page 18 (20 of the .PDF file) of E17, Collection of Student Loans, you will find a chart headed "error made in a previous tax year" which says that if the P35 has been submitted, the employer need take no further action and if asked, should advise the employee to contact the Student Loan Company in the case of an under-deduction.

So even when the employer has made a mistake, they are told not to do anything about it.  The old employer is out of the loop.

If you complete a tax return for 2009/10 (or any other year), the student loan repayment is calculated on the total income for the tax year and will form part of the tax liability for the year, so the under-deduction by the old employer in the first part of 2009/10 will be picked up that way.

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04th Jul 2011 11:36

I accept that

It does seem to go against any consistency. They don't do the same with NIC and PAYE.

I would think most employee don't submit tax returns either.

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04th Jul 2011 14:17

First, be very sure of your facts...

... first write to the previous employers and ask for details of student loan deductions, and payments they made, as per the copy P45 you're sending them. 

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