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

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.