Underpaid PAYE

Underpaid PAYE - HMRC or Employers fault

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Hi,

HMRC have stated I have £2.8K underpaid PAYE for the tax year 2022/2023.

Please note I worked for a company between April to June 2023 and then started a new role and was paid under an umbrella company from July 2023 for the remainder of the tax year. My salary increased when changing jobs.

In September 2022, I did recevie a refund from HMRC on my payslip from the umbrella company (I queried at the time and was told that it is fine). Looking at payslips it was at this point my tax code also changed. In September my tax code changed from 1059L to 1202L. On the date it changed, I received the refund.

Now HMRC are telling me I owe £2.8k which I believe is unfair as my affairs were done under PAYE.

On further inspection of documents, please note when I started the role I received the following from the umbrella company:

*Currently PayStream hold your tax code as 1257LW based on the information you supplied. This indicates to us that your income through PayStream is your only income at the moment but that you have had income earlier in the tax year.

*My first payslip used the tax code 1257L X

*Second to fifth ayslip used the tax code 1059L X

*Sixth payslip (the one I received a refund) used the tax code 1202 L

*All subsequent payslips in the year used tax code 1202 L

I can't seem to figure out if it is HMRC's fault or the umbrella company? Is there a way I can challenge this under ES A19?

When calling the helpline, I was told I should have told HMRC about my change in income? Is this correct, I assumed this would be duty of the umbrella company.

 

 

Replies (32)

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By Paul Crowley
15th Apr 2024 15:17

Looks like the coding was messed up by the umbrella company. Did you complete a new starter form, and give them a P45?
Good luck trying to get this fixed, other than by paying the tax.

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Replying to Paul Crowley:
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By FB2022
15th Apr 2024 15:27

I would have completed the new starter checklist. Having a look to see if I can find any proof of this.

I was just looking through emails and realised that the umbrella company sent me the following emails in August:

*1st of Aug 22 -Further to a recent P6 notification we have received from HM Revenue and Customs (HMRC), we have been instructed to operate a new tax code for you. P6 Applied:Tax code changed from 1257L to 1152L.

*3rd of Aug 22 - Further to a recent P6 notification we have received from HM Revenue and Customs (HMRC), we have been instructed to operate a new tax code for you.

P6 Applied:Tax code changed from 1152L to 1059L

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Replying to FB2022:
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By Paul Crowley
15th Apr 2024 15:45

P45
If the employer had the p45 then it should have all worked correctly, subject to taxable benefits.
No p45 means you should have been on an Emergency code.
Either way the system went wrong.
If you are higher rate then no p45 will definitely lead to errors every time that you change jobs.

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Replying to Paul Crowley:
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By FB2022
15th Apr 2024 15:54

Trying to ascertain whether P45 was sent. It appears that I would have filled out a P46 based on the email I just received from the umbrella company.

Did just receive confirmation by email from the umbrella company that I did notify them "income from PayStream would have been your only source of income at the time but you had received other taxable income or benefits within that tax year" prior to starting the job.

Confirmed - Higher Rate Tax Payer

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Replying to FB2022:
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By Paul Crowley
15th Apr 2024 20:59

P46 no longer exists
'The P46 form is no longer used. Get the information by asking your new employee to complete HMRC 's new starter checklist. If your employee has more than one ...
‎Starter checklist for PAYE · ‎Late P45 or starter checklist · ‎Student loan repayments'
from:
https://www.gov.uk/new-employee/employee-information
Some idiot is using outdated forms.

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Replying to Paul Crowley:
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By FactChecker
15th Apr 2024 21:22

VERY outdated ... as in basically fell into disuse with arrival of RTI (2013) and was formally withdrawn by HMRC in 2016 - and replaced by the "Starter Declaration".

Thanks (3)
Replying to FactChecker:
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By FB2022
15th Apr 2024 21:34

I think they have labelled it as P46 but it must be the HMRC new starter checklist.

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RLI
By lionofludesch
15th Apr 2024 15:31

That code change should have led to a repayment of about £150 if your marginal rate was 20%, £300 if it was 40%.

Impossible to say how that escalated to £2800 from what you've posted. You'd need to post pay and tax from every month (which I don't recommend).

Good luck with the ESC claim. Worth the effort for £2800, I suppose, but I'm not optimistic.

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Replying to lionofludesch:
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By FB2022
15th Apr 2024 15:39

lionofludesch wrote:

That code change should have led to a repayment of about £150 if your marginal rate was 20%, £300 if it was 40%.

Impossible to say how that escalated to £2800 from what you've posted. You'd need to post pay and tax from every month (which I don't recommend).

Good luck with the ESC claim. Worth the effort for £2800, I suppose, but I'm not optimistic.

I think it is because of the repayment of PAYE in September 2023. This amounted to 1793.36. I queried this immediately with both the umbrella company and HMRC (and was told not to worry!).

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Replying to FB2022:
RLI
By lionofludesch
15th Apr 2024 15:47

Yes - what I was getting at is that the code change should have led to a repayment of £300 max.

The code change hasn't been operated correctly.

Mind you, even an £1800 repayment shouldn't equate to a £2800 demand.

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Replying to lionofludesch:
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By FB2022
15th Apr 2024 15:56

How do I figure out if it was HMRC's fault or the umbrella company (if it is possible)? Or was the error on my part.

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Replying to FB2022:
By K81
15th Apr 2024 16:06

i am afraid that it is your fault - the employer will operate the tax code sent by HMRC whether it is correct or not, they do not know whether it is correct they just have to use it
- your job is to make sure that your tax code is correct. Did your income go over £100k in this period? if so that may be the reason for the tax owed.

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Replying to K81:
RLI
By lionofludesch
15th Apr 2024 17:09

K81 wrote:

i am afraid that it is your fault - the employer will operate the tax code sent by HMRC whether it is correct or not, they do not know whether it is correct they just have to use it

Woah! That's a massive assumption.

It's not unknown, for example, for an employer to use the code on the notice but fail to notice the cumulative pay and tax. It's a common error.

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Replying to lionofludesch:
By K81
16th Apr 2024 07:30

Maybe I should re-phrase that to HMRC will see it as his fault.

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Replying to K81:
RLI
By lionofludesch
16th Apr 2024 10:13

K81 wrote:

Maybe I should re-phrase that to HMRC will see it as his fault.

It's probably more to the point that they'll see it as not their fault.

And they're probably right (who knows?)

Either way, the weakness in the OP's case is that he agrees that he's underpaid tax. He's lost nothing. Though he's gained a nasty unexpected demand.

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DougScott
By Dougscott
15th Apr 2024 16:03

Have you calculated what tax you SHOULD have paid for 2022-23? That would be a starting point. You could use HMRC software to fill in a Tax Return and see what tax it calculates - see if HMRC are correct. If they are correct I think there is little chance of challenging it.

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Replying to Dougscott:
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By FB2022
15th Apr 2024 16:39

I have done so and it appears to be correct. The reason I'd be challenging is under PAYE I wouldn't have expected it to be wrong by such an amount.

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Replying to FB2022:
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By FactChecker
15th Apr 2024 18:24

And that's where you're going wrong - or at least making the wrong assumption.

As a taxpayer your obligations are to pay the correct amount of Tax ... if you were self-employed, for instance, this would be obvious. But the fact that you are an employee (paid under PAYE by your employer) doesn't change that obligation.

PAYE is merely a method that is intended to collect *approximately* the right amount of tax (by deduction from earnings - taken by your employer and paid by them to HMRC on your behalf on a regular basis throughout the tax year).
But it is rarely 100% 'spot on' when the final YE calcs are performed - which is why HMRC often use an amended tax code for an individual to claim an overdue amount (one bit at a time throughout the next year).

The reason that it is wrong (from late notification of a benefit in a previous year to an accidentally missed earnings item or whatever) has absolutely NO bearing on whether you owe the amount due-but-not-paid. Simply, you owe it!

So you only have two options (apart from paying up):
(1) identify some materially incorrect data that has been submitted to HMRC (e.g. employer said £20,000 bonus when they meant £2,000 - and more importantly only paid you the lower amount); or
(2) try to convince your employer/umbrella company to reimburse you for whatever fault you believe they've made - but in that case you will *still* owe HMRC, who will not sit by patiently while you argue with the employer!

EDIT: I see that DKB-Sheffield (15th Apr 2024 at 16:17) made the similar point, albeit more gently perhaps, which I hadn't spotted at this point in the thread.

Thanks (5)
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By DKB-Sheffield
15th Apr 2024 16:03

Did your income for the year (all income combined) exceed £100K perchance?

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Replying to DKB-Sheffield:
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By FB2022
15th Apr 2024 16:38

It did not, total is £80k as per the breakdown received from HMRC.

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By DKB-Sheffield
15th Apr 2024 16:17

Regardless of the reason, PAYE is not - and never will be - an exact science (contrary to any protestations by HMRC otherwise).

In-year employment changes, multiple employments, incomes exceeding the PA taper, collection of prior year tax through coding, HICBC collection... all cause havoc with the PAYE system.

Realistically, it's rarely anybodu's 'fault' (employer, employee, HMRC). The system is just a vehicle to collect tax - almost in real-time. Yet it is no substitute for the year-end recollbciliation. A lot can happen in a year which is why it is worth having a basic understanding of how tax works. Not a dig at the OP - mainly that there is little in the way of general education of the tax system (something which ultimately affects EVERYONE).

@OP if you haven't done so, register for the Personal Tax Account. It won't give you all of get answers... but it will help you track your income, and give you a basic understanding of how much tax you have paid. You can then consider what you think you should have paid YTD.

Thanks (4)
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By Tom+Cross
15th Apr 2024 16:41

This might be worth a read
https://assets.publishing.service.gov.uk/media/5a7debd8e5274a2e87dae625/...
Further useful information can also be found here
https://taxaid.org.uk/guides/information/issues-for-employees/employee/c...
The clear message in all cases is that responsibility for the accuracy of the code, rests with the taxpayer.
Whilst in a perfect world that may indeed be true, in reality the communication between taxpayers, agents and HMRC is to say the least "broken".
Finally, do you have a personal tax account? If not, I suggest that you organise one, as soon as possible.
https://www.gov.uk/personal-tax-account

Thanks (1)
Replying to Tom+Cross:
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By FB2022
15th Apr 2024 16:50

Thank you - This is useful.

Confirmed I do have a PTA set up.

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paddle steamer
By DJKL
15th Apr 2024 16:46

Presume you did not move to Scotland, our tax bands can readily increase tax by £1,600 or so, so if moved but no S code?????

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Replying to DJKL:
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By FB2022
15th Apr 2024 16:48

Confirmed - I did not move to Scotland.

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Routemaster image
By tom123
16th Apr 2024 07:40

The word "umbrella" always scares me - potential for all sorts of screw ups there.

It looks to me as though a week one / month one flag got removed mid year, and then generated a refund of all your PAYE to date.

Thanks (2)
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By rmillaree
16th Apr 2024 08:50

op the answer here is probably compcicated and technical

however

you need to need to understand and accept this fact - its vital you check tax codes and you should NEVER expect that because you are paye that the right tax will be deducted. Its as simple as that - your theory that someone else to blame could be wrong - the paye system isnt perfect nad even if others make mistakes you are obliged to check your tax codes if you have any doubts.

If your tax code changed and you made zero effort to check or notice then really you are probably the culpable person here although that is open for debate.

Either way not checking your tax codes and burying your head in the sand its not how it works.

imho if you secored massive tax refund due to tax code change and you did nothing to check with hmrc whether that was right - hopefully you can understand its your misconeption of how things work that is the issue here.

Pass this warning onto anyone else who is paye.

Note there are limited circusmtances where you might get away with this - i wont really comment on that as its probably being addressed by others.

Thanks (2)
David Ross
By davidross
18th Apr 2024 10:54

The code changes seem minor and a refund was given in pay, so I don't see how they account for such a large underpayment as £2800 !

£2800 at 20% is £14000 (more than the whole personal allowance) and at 40% it is £7000

Surely HMRC has sent some sort of Tax Calculation (Simple Assessment?) to explain this. Otherwise you have not given this community enough information to make a judgment

BTW I think that Umbrella Companies do the dirty work for larger organisations that don't want to take responsibility, and I have never been able to fathom their calculations, but that should not impede the reading and understanding of a Tax Assessment

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Replying to davidross:
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By rmillaree
18th Apr 2024 12:17

so I don't see how they account for such a large underpayment as £2800 !

the fact the code changed form m1 to cumulative to me suggests that the prior ytd employment details were missing and a whole years allowances were in error ! one possible option

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Replying to davidross:
RLI
By lionofludesch
18th Apr 2024 13:37

davidross wrote:

Surely HMRC has sent some sort of Tax Calculation (Simple Assessment?) to explain this. Otherwise you have not given this community enough information to make a judgment

OP agrees it's correct. He's wondering how it could happen, particularly when he flagged the issue up. So am I.

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By tonyaustin
18th Apr 2024 16:11

Did your income exceed £100,000? If so, your personal allowance reduces by £1 for every additional £2 of income. PAYE cannot cope with this unless you ask HMRC to reduce your code number. If your earnings for the year were £114,000, you lose £7,000 of personal allowance so taxable income increases by £7,000. This will increase tax payable at 40% by £2,800

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Replying to tonyaustin:
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By FactChecker
18th Apr 2024 19:34

Neat 'solution' ... except that OP said in a comment (15th Apr 2024 at 16:38):
"It (all income combined for the year) did not (exceed £100k), total is £80k as per the breakdown received from HMRC."

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