PAYE & Tax Codes - Who's on the hook?

PAYE & Tax Codes - Who's on the hook?

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Hi all,

Just wanted to run something up the flagpole to check my position on an issue is the correct one.

I have a former employee who retired through ill health two years ago, and lives on disability benefits.  He has recently received a tax bill for an earlier tax year.  He has called me, telling me that the underpaid tax is due to our payroll department not implementing a new tax code provided by HMRC.  The payroll dept have no record of ever having received this.  He believes it is our (his former employers) fault that his tax as been underpaid, and that the Revenue have advised him to seek compensation from us (which I would find hard to believe if I had not had personal experience of an HMRC "help" line).

I am not a tax professional, however I always understood that it was ultimately the responsibility of the individual to ensure that all income tax due for a given tax year was paid (as everyone's tax affairs are different).  Furthermore, I don't see how it is possible for any employer to account for personal circumstances they are not made aware of in their application of PAYE.

Given this individual's personal and financial circumstances, and the relatively trifling amount involved, I'm minded to make an ex-gratia payment to cover the shortfall in this instance, but at the same time, I don't want there to be any suggestion that we are accepting liability for something that I believe is his own stupid fault.

Assuming I'm right of course.

Replies (7)

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By aiwalters
01st Feb 2012 01:34

Good faith
See http://www.hmrc.gov.uk/thelibrary/tax-paye/employer-errors-deduction-pay...

If you applied the tax code you did in good faith, then it is the employees problem, not yours.

If you did not apply the correct tax code after being told to by HMRC, then it could be your problem. See also http://www.hmrc.gov.uk/manuals/pommanual/paye92060.htm

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By Marion Hayes
01st Feb 2012 09:52

How did codes arrive?

You do just need to make sure the payroll company hadn't elected to receive codes electronically. If they did you cannot argue it wasn't received.

But wouldn't you then have a matching claim against them through your outsourcing agreement?

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By James Hellyer
01st Feb 2012 12:40

Employee should have noticed

The employee would have receives copies of his coding notices along with the explanation of what they meant.

The employee would have received his payslips showing the code wasn't actioned.

The employee probably knew he was getting more pay than he should have done and kept quiet about it.

If the company has no record of receiving the coding notice and isn't signed up to receive them electronically, tell him to go swing.

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By Leopold Stotch
01st Feb 2012 12:47

Thanks all

Thanks everyone for your responses.

Looks like I was right, even without knowing why (!).

The thing I don't understand is that the payroll bureau's records show that the tax was changed each year (I would be stagggered if this particular company is not signed up to receive electronic updates).  It makes me suspect that HMRC's own tax calculations are where the error lies.

I'll find out soon enough.

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By Jekyll and Hyde
01st Feb 2012 14:21

Electronic tax codes....

... As a payroll agent I am signed up to get tax codes electronically for my payroll clients. On monday I received an email from a client to say his 2012/13 tax code has changed and that did I get the notification and do I need his copy? The tax code is dated 19th January 2012 and I am still awaiting it from HMRC. The company has not received it and therefore the only person so far to have received it is the employee (we are now some 2 weeks and waiting). Therefore even if you are signed up to receive electronic tax codes there is no guarantee that you will actually get one as an employer/agent. It is down to the systems at HMRC, which are far from perfect.

Therefore there is a very good chance that neither the company nor its agents got any notification of a change of tax code and if the employee had received one then why didn't he inform the company and give them a copy?

 

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Replying to fawltybasil2575:
By aiwalters
02nd Feb 2012 12:13

what's the rush?

Chesterfield accountancy wrote:

... As a payroll agent I am signed up to get tax codes electronically for my payroll clients. On monday I received an email from a client to say his 2012/13 tax code has changed and that did I get the notification and do I need his copy? The tax code is dated 19th January 2012 and I am still awaiting it from HMRC. The company has not received it and therefore the only person so far to have received it is the employee (we are now some 2 weeks and waiting). Therefore even if you are signed up to receive electronic tax codes there is no guarantee that you will actually get one as an employer/agent. It is down to the systems at HMRC, which are far from perfect.

Therefore there is a very good chance that neither the company nor its agents got any notification of a change of tax code and if the employee had received one then why didn't he inform the company and give them a copy?

There is no reason for employers/agents to have received coding notices for 2012/13. They will not arrive until much later on, shortly before the 6 April.  We have received  a lot of them for our SA clients (we can see them online), but the employer doesn't yet show it. If it still hasn't arrived by 6 April you can be concerned. 

Not yet.

We generally get P6s for current year sooner than the employee.

 

 

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By CEL
01st Feb 2012 15:29

I thought that employers could only amend codes on HMRC say so not the employees - otherwise we would all be asking for the codes to be increased! 

Plus the notice received by the employee should provide details of how the code is calculated which he may not want his employer to see.

We had a similar case (long time ago) where an employee joined around the time of a wholesale change to codings so was not included on the list from HMRC. His P45 was used for the tax code and spot checks didn't pick up that his code hadn't been amended for the wholesale change. Later a revised notice of coding was apparently issued by HMRC but not received by us. The error was eventually picked up through change of software.

HMRC received all year end submissions including coding details.

HMRC charged the company for the PAYE underpayment even though it took them 4 years to spot that the incorrect tax code was being used.  We tried to challenge on the basis that they had the information but did not reconcile the records on a timely basis so we shouldn't be liable for the whole amount but they wouldn't give in. There was no suggestion that the employee should be liable even though we pointed out that he should have realised that his tax code per his payslip didn't agree to his notice of coding.

I am surprised therefore that they are asking the employee for the tax if they believe that the employer was at fault. Perhaps your ex-employee is not telling you the full story.

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