Hi all
Quick query please.
Client pays net (which we have tried to get them away from but they refuse to)
Joiner last month on BR, this month tax code change results in tax refund. Because the tax refund is higher than the net pay the gross pay is a negative value. FPS is erroring.
Software company have said the employee must receive the refund, so net pay they are due plus the refund
Is this correct does anyone know? Tried looking on HMRC website but cannot find anything.
Many thanks
Replies (11)
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This sort of situation crops up every so often when there's a huge change in tax code.
The employee must be paid minimum rates, so that's your minimum.
Put the situation to the employer and explain that this is exactly why his net pay scheme doesn't work.
If he won't change, time to grow a pair and tell him to do his own payroll.
After this taking so long to sort out they will have to go onto gross payments.
When you say minimum rates I assume you mean NMW? If so, then yes the net pay does cover that so the question is do they receive the tax rebate on top of that?
The NMW is his minimum gross pay.
Not rocket science. Employer needs to get real.
To answer your question, let's turn it around.
If the employee joined in March, and HMRC issued the tax code in April, who would benefit from the refund for March calculated and issued by HMRC?
That's possibly the wrong question. The answer is, of course, the employee. Leaving aside the way the process normally works, let's ask what has been promised? The employee has been promised £80 in his sticky mitt. Under all circumstances he still has his £80. So if when the code is BR the employer paid £20; why not later if the tax is -£20 and the employee still has £80 is the £20 back not the employer's? That said telling the employer to do it the way the system is designed to work is easier for everyone.
No, if the answer is the employee when HMRC pay the refund, the nature of the refund (and entitlement to) does not change because that same refund is made via PAYE.
Indeed. If the question is what happens in this case, then I completely agree with you. But philosophically what should happen? The money is possibly the employer's; that it isn't, as you so eloquently state, is possibly the proof as to why you cannot use "net pay".
You can get much more serious and bizarre results when employee tax codes change the other way; ie when it appears that the employee has greatly underpaid their PAYE in the past for some reason.
Net employees can repeatedly get doubled gross pay for a series of weeks or months after such a tax code change, half of which goes in tax, and all of the burden of that falls on the current employer. Essentially the current employer ends up paying the entire PAYE cost of a past coding error. Clearly this is ludicrous but it comes about usually because of the employer's desire to pay a fixed amount, cash in hand, out of the till at the end of the week. Point this possibility out to most employers and they'll drop the idea of "gross up from net" faster than you can say, "prior PAYE underpayment" !
Completely agree. Especially when you explain K codes. PAYE works because the gross amount is the employees. Everything else flows from that. Paying cash and grossing up later is a false economy.