Client with approx 200 employees has been deducting pension contributions incorrectly for several years.
Employees contribute 5% of gross salary so for example:-
Gross Monthly Salary £2,000
Pension deduction shown on payslip £100 (i.e. 5% of gross with no tax relief)
£100 is send to pension provider, pension provider recovers the tax from HMRC (thinking that company has given tax relief to employee).
So the employee's net pay has reduced by £100 instead of £80; the pension provider has recovered an extra £25 tax relief (as they assume the employee paid £125 less £25 tax relief).
Is this a PAYE violation? If so is the company liable to fix this & repay the tax.
Does the pension provider repay the tax?
Has anyone came across this situation & how was it handled with HMRC/Pension provide?
Many thanks for any comments.