Two of our higher paid employees have submitted their tax returns and received huge demands for underpaid tax. One was on £96k (including £11k for co car) and one on about £110k including a similar amount for a company car. They have been hit with tax bills for about £5k and £7.5k respectively. Why has this happened when payroll is done via RTI and company cars all correctly reported - in fact no change in company cars from previous tax year!?
Payment has also been requested within a month as it can't be collected via tax code.
Is this common place? I thought RTI was supposed to stop this sort of thing happening? Can these people delay payment given that HMRC had all the correct info but somehow still got RTI wrong?
Thanks for any light anyone can throw on this!
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Assume the tax code was wrong
...presumably they both had full personal allowances when these were not due?
Still up to the individual to advise HMRC that their tax codes are wrong.
Agree with the above. This
Agree with the above. This is between the employees and HMRC, nothing to do with you as the employer. They should reflect on why they didn't notice their tax codes were wrong, or do anything about it if they did.
Not a popular move
Predicted earnings? So you're saying that HMRC should take additional up-front tax based on an assumption that future earnings are going to exactly mirror past earnings? Because introducing guess-work (even informed guess-work) into the PAYE system sounds like a really bad idea to me. Given HMRC is not given a detailed break-down of pay in RTI reports, how are they supposed to know what is regular pay and what is one-offs? The scope for miscodings from "guessing" future pay is enormous. Errrr....RTI? If RTI is supposed to be Real Time Information then can't tax codes also be updated in real time based on predicted earnings for the year at any given point?
Thanks for at last confirming HICBC is out of the picture at least.
Anything to do with family allowance?
So many features which could affect this, pensions, family allowance, other income, an assessment due to no SAR......
All you can realistically do is confirm that the tax code you used was correct and p11Ds are accurate.
How quaint
family allowance
I have not heard that phrase for so many years. It brings back memories of taking the family allowance book down to the post office for my mother.
Get them to analyse their underpayments
Get them to go through their PAYE codes and cost out in tax terms any differences between the code and the actual BIK.
They may have other income of course and a need to pay higher rates of tax on investment income or they may have profitable buy to lets.
This will let them to work out what their 2014-15 tax codes should be, as it is possible that these will be wrong for the same reasons that caused the 2013-14 problem.
Then get them to take a look at HIBC and lost pa due to breaching the £60K & £100k income limits.
They should also take a look at pension and gift aid payments to ensure that these are correct.
Alternatively if the underpayments come from the HMRC P800 calculation they maybe just plain wrong! (watch for duplicated employment income)
Also, a bit unlikely, but you may find that their 31 January 2015 tax bills includes a payment on account for 2014-15.
Not an RTI problem specifically
Whilst I don't disagree with you that this should not happen and RTI could in theory resolve this, it is an age old problem not created by RTI.
To be honest, yes I do expect employees to have some basic understanding of tax codes and rate bands. These employees are clearly not your office juniors and the information is all there on t'internet. Welcome to self-assessment!
I suspect that they will take more of an interest the next time they receive a PAYE coding notice from HMRC.
Also,do they really not have so much as a bean of bank interest or a stray Santander dividend liable at higher rates?
I suspect something is wrong
What what you say the underpayments look too high. Just tell us what codes were in operation.
Assuming that the tax codes and P11D information were correct, could they have completed their tax returns incorrectly. It's interesting that people always seem to notice when they appear to be paying too much tax not when it's the other way !
Theory all very well but
Take an example of somebody paid £10,000 in April (lets say it includes a bonus of £5,000) His annual earnings for the previous year were £60,000. Using your theory with RTI HMRC in month 1 would assume his annual earnings are £120,000 and change his code to remove his personal allowance. But in month 2 his earnings go back to £5,000 so then HMRC should change his code again to put his personal allowance back and so on etc. It does not happen in practice (I believe!!)
I still believe something else is either wrong or you have not given all the information.
First action is to issue SA return
Client where P60 + P11d = just under 100k received a 2013/14 return.
Explained employers 100k earnings cap and return cancelled.
No codes restricting PA had been issued at that point