Employee asking for a lower payment

An employee has asked if is possible to be paid a lower amount next month to avoid higher tax band

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An hourly paid employee has asked if it's possible to be paid a lower amount next month to avoid being pushed into a higher tax band. They are looking at being paid for only a third of the hours they've worked with the other two thirds being paid in the next tax year.

Technically it's possible but it doesn't sound right to me. Any tax/payroll experts out there who can help with this?

Replies (50)

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By SXGuy
01st Mar 2022 16:36

Why do you need an expert? They are clearly trying to avoid paying the correct amount of tax based on the hours worked by pushing it in to a new tax year. You don't need an expert.

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By ireallyshouldknowthisbut
01st Mar 2022 16:45

Chances are they (quite incorrectly) think all their income will be magically taxed at the higher band if they creep into it.

Perhaps explain how tax works and then if they push for it I would go with "I cant help you with tax fraud" as an opening gambit.

Getting the word "fraud" in there is quite helpful to put people on the back foot.

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By Erming
01st Mar 2022 16:49

Thank you for both replies each echoing what I thought. The problem I have is I'm an employee and I know the MD will tell me to do this.

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Replying to Erming:
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By Paul Crowley
01st Mar 2022 17:53

Let MD do the PAYE for that person and take the risk himself

I am less concerned on this "fraud"as it is a timing issue, not outright evasion
In other environments wages are based on timesheets
Let MD and employee figure that one out themselves

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Replying to Paul Crowley:
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By I'msorryIhaven'taclue
02nd Mar 2022 12:43

I've read the complete thread to date, and I think you're spot-on (esp. for someone in the OP's master/servant position).

OP, wages are indeed based on timesheets submitted; also the case for bonuses, commissions and other such performance-related pay where there is often a time-lag between work and payment.

Rather than trawl their contracts looking for reasons for any such delay, or indeed having to conjure reasons from your hat (payment of latter two-thirds of work not authorised by MD due to incomplete or unsatisfactory work standards... that sort of thing) you should instead help the MD and employee figure out the workaround for themselves (along Paul C's lines). So "There's nothing legal I can do to solve your problem, although if your timesheets contain fewer hours in February/March and more thereafter AND those timesheets are authorised by the MD then I (the OP) won't know about that, will I!"

! rather than ? for emphasis. It's permitted with rhetoric, even to rhetorical questions. Before I get picked up by those with the Grammarly app. installed. Just saying.

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Replying to Erming:
By ireallyshouldknowthisbut
01st Mar 2022 17:58

Erming wrote:

Thank you for both replies each echoing what I thought. The problem I have is I'm an employee and I know the MD will tell me to do this.

If you are bullied into it I would ensure you show a detailed email trail of your saying it is tax fraud before processing it. Print out a copy of the email and take it home.

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By gillybean04
01st Mar 2022 17:04

Quoting EIM42260

"Money earnings are treated as received for assessment purposes, and paid for PAYE purposes, on the earliest of the following:

when a payment of earnings is actually made or when a payment on account of earnings is made (see EIM42270)
the time when a person becomes entitled to payment of earnings or a payment on account of earnings (see EIM42290)"

The second part of that is likely to be the problem, since presumably their terms of employment mean they are entitled to be paid the earnings this year. And, just in case you prefer the statutory reference, it's section 18 of chapter 4, part 2 of ITEPA 2003.

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By lionofludesch
02nd Mar 2022 11:22

gillybean04 wrote:

The second part of that is likely to be the problem, since presumably their terms of employment mean they are entitled to be paid the earnings this year. And, just in case you prefer the statutory reference, it's section 18 of chapter 4, part 2 of ITEPA 2003.

To interpret it in such a way would be unenforceable in many cases. It would return us to an abuse which HMRC "clarified" in 1990. In simple terms, they said pay belongs to the tax year in which it goes on the deduction card.

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Replying to lionofludesch:
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By gillybean04
05th Apr 2022 23:21

I wasn't saying when they gain the entitlement (aka earned it). It's when the interest they have vests/they are entitled to be paid it. I was specifically thinking about the comments of the SC in the hmrc v rangers paye case.

So an employee cannot choose to defer a payment, at least not in a way that's effective for tax purposes (although it would be a failure of the employer by not operating paye on the earnings). The fact they can choose to defer it means they must be entitled to be paid it.

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By Wanderer
01st Mar 2022 17:29

Holding an employee's pay over from one period to another. What could possibly go wrong! What about NMW / pensions / employee rights / what you do when the problem is compounded next year / etc. etc.

Don't do it, just don't do it.

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By lionofludesch
01st Mar 2022 19:16

Beware the side effects.

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By Hugo Fair
01st Mar 2022 19:26

Despite agreeing with everyone else's comments in terms both of the moral angle and the possibility of egg on face for whoever processes the payroll, let me make the decision harder for you!

1. The point at which earnings are subject to PAYE is when they are paid (NOT when they were earned); and
2. What would you do if this hourly-paid employee happened to hand in her/his timesheet for the March payrun without all the hours worked having been signed off?

Most people would, on receipt of the next timesheet (that now includes the hours accidently omitted by employee in previous month) simply process all that in the next payrun ... which is not a million miles from what EE has requested?

Of course, as @ireally.. has pointed out, it's quite possible that EE isn't aware of how little 'extra' tax may be at stake ... but conversely it could be far worse if the request is driven by a desire to fool the good folks at DWP into paying more UC than due!

Which is why (in the absence of more details than are suitable for a public forum) the EE request tends to leave a sour taste in the mouth - but may not be as b&w as it looks.

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Replying to Hugo Fair:
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By lionofludesch
01st Mar 2022 19:48

I agree with Hugo.

Though I'd still beware of unexpected side effects.

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Replying to Hugo Fair:
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By SXGuy
01st Mar 2022 20:17

I agree with your logic. But from the outset op has stated EE wants to do it to not be hit by the higher tax rate. So to speculate other scenarios which would warrant a future date to be paid is irrelevant since we already know the reason behind the question.

And given the reason, its not as common and I can not see any justification for doing so given the reason stated.

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Replying to Hugo Fair:
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By Tax Dragon
02nd Mar 2022 06:44

Hugo Fair wrote:

The point at which earnings are subject to PAYE is when they are paid

Correct. As in, that's what the law says. This is of course the same point gillybean04 has already made, except that contributor provided more detail of what the law says by pointing out the relevant statutory definition of "paid" in s18. (I say "relevant" not only because the law applies this definition, not one found in a dictionary or elsewhere, but also because there are different definitions for different categories of payee.)

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By justsotax
02nd Mar 2022 10:03

not by any chance being assessed for child support and need to provide details of their latest months pay.......? (beware the real reason for such a contrived plan)

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Replying to justsotax:
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By Erming
02nd Mar 2022 10:52

That's possible.

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Replying to justsotax:
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By Erming
02nd Mar 2022 11:17

What is the upper earnings threshold for child benefit?

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Replying to Erming:
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By Dib
02nd Mar 2022 13:23

£50k unless it has changed recently.

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Replying to Erming:
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By lionofludesch
02nd Mar 2022 13:24

Erming wrote:

What is the upper earnings threshold for child benefit?

Either £50k or £60k, depending on what you mean by "upper earnings threshold".

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Replying to lionofludesch:
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By Paul Crowley
02nd Mar 2022 13:36

Agree
A bit over £50K does not mean much needs to be repaid
BUT the admin of a tax return

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Replying to lionofludesch:
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By lionofludesch
02nd Mar 2022 13:50

lionofludesch wrote:

Erming wrote:

What is the upper earnings threshold for child benefit?

Either £50k or £60k, depending on what you mean by "upper earnings threshold".

Actually, technically, it's £50,100.

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By SteveHa
02nd Mar 2022 13:17

Don't forget extra 1.25% NI, both employee and employer, if paid in April rather than March.

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By accountaholic
02nd Mar 2022 13:29

As others have said it would have been easier if the MD just gave you timesheets with fewer hours this month and more in April. You would just process what you were given.
The problem I see with this kind of thing, and I have seen it many times over the years with pressure to increase or decrease earnings for various reasons, is that once you've co-operated "just this once", there'll always be a next time and then they will say "remember you did this for me last year...".
If you push some of March into April this year, then if their earnings go up later this year will you be asked to push both Feb and March into April 23, and so on.

I sympathise with your position as employee though, possibly stand back and look at the context and relative amount of pay involved to help you conclude what to do. Sometimes you have to pick what battle to dig in hardest on.

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Replying to accountaholic:
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By Erming
02nd Mar 2022 15:41

Thank you for your reply. It's a family business and the EE is a member of the family, so very difficult. Processing the timeshares given to me is the way round it.

As you say it won't stop there, it will spread to other employees and we will be in the same position this time next year.

As you can guess with a question like mine, it's not a very nice place to work, so this problem makes me realise I need to double my efforts to get a new job!

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By accountaholic
02nd Mar 2022 17:33

Good luck then. Don't get too stressed and remember you've got a giant sounding board on here if you need it.

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Replying to accountaholic:
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By Erming
02nd Mar 2022 18:54

Thanks everyone and accountaholic you are a star

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By Confused78
02nd Mar 2022 19:59

I actually got asked this question by an employee a couple of years ago.
We told him no as what happens when this could potentially increase his earnings for next year and he wants it doing again?
What happens if more employees find out and want it doing?
It was more hassle than it worth and yes it’s a lot of money but they earned it why shouldn’t they pay the tax like everyone else

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By Confused78
02nd Mar 2022 19:59

I actually got asked this question by an employee a couple of years ago.
We told him no as what happens when this could potentially increase his earnings for next year and he wants it doing again?
What happens if more employees find out and want it doing?
It was more hassle than it worth and yes it’s a lot of money but they earned it why shouldn’t they pay the tax like everyone else

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By rememberscarborough
03rd Mar 2022 11:21

Late to this but if you don't document the reduced pay you are likely to be in breach of the employment contract and if you do document it you are likely to give HMRC ammunition for tax avoidance. Let your MD work out which government department they are scared of most!!

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By johnacarpenter
03rd Mar 2022 11:47

This is what's already happening in the medical profession, many doctors are going part time to avoid the massive penalties of the higher tax rate. Of course we have a shortage of GP's for exactly that reason. The effect of tax on high qualified professionals is that the their contribution to the economy is restricted.
Seems like an own goal from the tax system.

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Melchett
By thestudyman
03rd Mar 2022 23:34

I mean it could be child benefit related but more likely a case of financial illiteracy of marginal tax rates. Probably magically thinking once they breach the tax threshold all their income (less pa) goes into the 40% bracket.

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By Erming
14th Mar 2022 08:48

The latest on this is...I have now been asked if I can pay contracted hours this month and hold the overtime pay over until next month?

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Replying to Erming:
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By Hugo Fair
14th Mar 2022 12:30

Who's doing the asking (the employee aka 'family member', or your boss)?

Although this is slightly easier to do than the previous request (especially if whoever is supposed to pass you the authorised overtime hours forgets to give them to you in time for processing this month) ... it is still not 'correct'.

Perhaps more to the point, is your employer aware that it will increase ER costs due to the increased rate of NICs from 6th April?

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Replying to Hugo Fair:
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By lionofludesch
14th Mar 2022 12:46

Hugo Fair wrote:

Who's doing the asking (the employee aka 'family member', or your boss)?

Although this is slightly easier to do than the previous request (especially if whoever is supposed to pass you the authorised overtime hours forgets to give them to you in time for processing this month) ... it is still not 'correct'.

Why's that, Hugo ?

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Replying to lionofludesch:
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By Hugo Fair
14th Mar 2022 13:46

Well the core of my response was actually in the none too subtle enquiry as to whether the request came from the EmployeR ... and if so whether ER is aware of the additional costs (for them) that this would incur.

So I deliberately used the woolly word 'correct' to encompass a variety of aspects already touched upon in the many earlier responses.
But since you ask I primarily meant in terms of the likely Employment Contract setting out things like when payment should be made (hence my tongue-in-cheek reference to someone forgetting to supply the figures in time - which is probably a scenario covered in said T&Cs). Failure to comply with those terms leaves the employer open to a claim for unlawful deduction - which is a pain.

FWIW the employee too can lose out (although no doubt unaware of this) ... for instance their holiday pay will be lower than it 'should have been' for a while.

Also, as I believe mentioned earlier, we don't know that the sole reason for the request is to do with tax across tax years - although that seems likely. So although there is nothing fundamentally invalid from a PAYE perspective in taxing at time of payment, there may be other factors (such as UC) at play as well ... in which case they have their own rules and penalties.

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Replying to Hugo Fair:
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By lionofludesch
14th Mar 2022 14:02

Hugo Fair wrote:

Well the core of my response was actually in the none too subtle enquiry as to whether the request came from the EmployeR ... and if so whether ER is aware of the additional costs (for them) that this would incur.

So I deliberately used the woolly word 'correct' to encompass a variety of aspects already touched upon in the many earlier responses.
But since you ask I primarily meant in terms of the likely Employment Contract setting out things like when payment should be made (hence my tongue-in-cheek reference to someone forgetting to supply the figures in time - which is probably a scenario covered in said T&Cs). Failure to comply with those terms leaves the employer open to a claim for unlawful deduction - which is a pain.

FWIW the employee too can lose out (although no doubt unaware of this) ... for instance their holiday pay will be lower than it 'should have been' for a while.

Also, as I believe mentioned earlier, we don't know that the sole reason for the request is to do with tax across tax years - although that seems likely. So although there is nothing fundamentally invalid from a PAYE perspective in taxing at time of payment, there may be other factors (such as UC) at play as well ... in which case they have their own rules and penalties.

Sure - I've mentioned before about being wary of the side effects.

But this is a family member. If he wants to take these risks and is happy that there may be consequences, I can't see how the OP can stop him.

I'm sure we've all played with salaries and the timing of dividends in our time and called it "tax planning". This is no different.

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Replying to lionofludesch:
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By Tax Dragon
14th Mar 2022 14:14

lionofludesch wrote:

I'm sure we've all played with salaries and the timing of dividends in our time and called it "tax planning". This is no different.

So you agree with Hugo - it is "not 'correct'"

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Replying to Tax Dragon:
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By lionofludesch
14th Mar 2022 15:00

Tax Dragon wrote:

So you agree with Hugo - it is "not 'correct'"

Define "correct".

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Replying to Hugo Fair:
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By Confused78
14th Mar 2022 13:03

Why don’t you do a comparison on what the payroll would be now and what it would in April given the increase’s?
Will the employee have payroll next month so he/she will be getting double overtime next month?
It’s not unheard and I know companies where you have to wait a month for overtime payments

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paddle steamer
By DJKL
14th Mar 2022 12:57

Offer them salary sacrifice with a pension contribution or nothing.

Wages being moved a year is a touch like playing with stock adjustments, the figure will get bigger and bigger each year, to maintain the basic rate, and eventually the adjustment will devour the business that has been guided by the misleading accounts.

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By lionofludesch
14th Mar 2022 13:16

DJKL wrote:

Offer them salary sacrifice with a pension contribution or nothing.

Wages being moved a year is a touch like playing with stock adjustments, the figure will get bigger and bigger each year, to maintain the basic rate, and eventually the adjustment will devour the business that has been guided by the misleading accounts.

It's not within the OP's gift to make any offers.

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By Erming
14th Mar 2022 15:28

Both are asking for this to be done. Suggested making a pension AVC but this was turned down. I have explained the knock on effect and about the NI increase but this has made no difference

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By lionofludesch
14th Mar 2022 15:32

Erming wrote:

Both are asking for this to be done. Suggested making a pension AVC but this was turned down. I have explained the knock on effect and about the NI increase but this has made no difference

Well, it's not your problem.

Nice to be able to point out that you told them so if it all goes wrong in April.

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By Erming
05th Apr 2022 20:32

Payroll has been done! I produce a spreadsheet collating hours from the clocking in records. The employee who was asking for the lower payment is the person who checks the spreadsheet before I process the payroll. He crossed out his overtime hours on the spreadsheet and I processed the amended sheet. Not happy about it but had no choice. Suggested again making an AVC but again this was declined.

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By Erming
05th Apr 2022 20:32

Payroll has been done! I produce a spreadsheet collating hours from the clocking in records. The employee who was asking for the lower payment is the person who checks the spreadsheet before I process the payroll. He crossed out his overtime hours on the spreadsheet and I processed the amended sheet. Not happy about it but had no choice. Suggested again making an AVC but again this was declined.

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By lionofludesch
05th Apr 2022 20:59

Personally, I always thought it was fine.

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By Hugo Fair
05th Apr 2022 22:42

Especially if, as not mentioned previously, the relevant employee "marks her/his own homework"!

Apparently OP was never being asked to approve, or even endorse, the fragile relationship to the truth represented by the 'claim' ... just to process the figures supplied (without any need for protection of personal posterior).

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By Erming
06th Apr 2022 07:27

Yes employee marks his own homework and then I get to process it.

I have expressed my concerns but that fell on deaf ears. I also told employee he should be prepared to explain his alterations if queried.

My concern is that my posterior will be on the line if this gets queried. The only idea I have at this stage is an email to MD saying I am still concerned (obviously printed off and stored at home).

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Replying to Erming:
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By bendybod
08th Apr 2022 14:00

I would absolutely do that. And, as you said earlier, double your efforts to find somewhere else to work! Life is too short to work somewhere where you are asked to do things that, at the very least, make you extremely uncomfortable.
I worked for an employer once where I flatly refused to file the year end returns in a particular year since I knew (as a qualified accountant) that they were deliberately incorrect. Fortuantely I was in a position that I was fairly certain that if they sacked me I could, at the very least, find a temping job until I found something permanent.

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