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PAYE calculation error - post year end

An employee discovers, after all employer year end returns have been filed, that the amount deducted for NIC from his pay is excessive in law.  Which of the following statements is/are correct?

1) As it was the employer's error, the employee's only redress is to apply for the shortfall from the employer, who in turn then has to attempt to recover from HMRC by an amendment to annual PAYE return.

2) Despite that it was the employer's error, as annual returns have been filed, the employee's only redress is to HMRC who must refund

3) The employee has a choice regarding to whom to apply for the refund, but whichever route is chosen the other party is obliged to stump up.

4) There is no formal mechanism in law for the employee to apply direct to HMRC for the refund but by concession HMRC will (always/usually/offten/sometimes on a whim, delete as applicable) honour the claim.

Finally, does your answer to the above vary if it was income tax rather than NIC?  In my experience HMRC will normally accept that PAYE income tax if duly paid albeit incorrectly calculated will generally be accepted as a (potentially repayable) credit against the employee's income tax liability.  But is that just by concession?

Thanks

With kind regards

Clint Westwood

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HMRC Guidance for NI overpayments

http://www.hmrc.gov.uk/ni/refunds-complaints/claimback.htm

PAYE is a cumulative tax that would be caught automatically by HMRC at PAYE year end, but it wouldn't necessarily be obvious to HMRC that NI overpayments had occurred, hence the need to apply.

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25th May 2012 11:44

Thanks - followup question

Thanks for the link, it answers most of my questions, but ....

1) The first sub-link takes you to a page which describes the circumstances under which an individual might have overpaid class 1 NIC.  All of the causes listed appear to be overdeductions that arise from the normal operation of law in-year.  Possibly significantly, NOT included in that list is the possibility of the employer simply having erred in law and miscalculated the deduction.  It concerns me that the subsequent sublinks of the main page, which go on to describe how to claim from HMRC the resulting overpayment might be limited to claims arising from causes listed in the aforementioned list, which is to say where the employer is blameless in the cause of the overdeduction.  Can you confirm that the claims procedure described in this set of links is extended to the wider scenario?

2) The link provided gives a procedure for claiming from HMRC over-deducted NIC, but it is silent on the possibility of a right of action by the employee against the employer.  Do you have an opinion on whether the employee might have such a case?  Or would the employer be able in law successfully to resist such an application on the grounds that the employee has an alternative mechanism for securing the refund (ie from HMRC)?  The answer to this may depend in part on the answer to question 1 above.

Thanks

With kind regards

Clint Westwood

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Why not try (1)

I can't possibly confirm how HMRC will view any particular application for NI refund.

Why not try case #1 first, and if it suffices (as I would suspect is likely, provided that the employee can show unequivocal evidence of the error) then there is no need to consider case #2.

BUT... incidentally, HMRC's advice to employers who have mistakenly deducted too much NI from an employee in a previous PAYE year is to contact their tax office for guidance, so an alternative tack would be to ask the employer to follow those instructions.

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Class 1 refunds section

In my experience you write to Class 1 refunds department at Long Benton with a copy of the P60 showing the over deduction. They will not receive their copies for months.

Once you have showed it is overpaid it is much easier dealing with Long Benton than the tax side of HMRC as they have less backlog and you talk to the case worker not a call centre

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