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Taxpayer liable for a mistake on her P46

Cindy Riquier claimed her employer was responsible for a PAYE error which resulted in a tax underpayment, but the first tier tribunal decided the fault lay with her for submitting an incorrect P46.

11th Oct 2019
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Cindy Riquier [TC07155] was employed by two companies for a short overlapping period in December 2015.  

She was initially employed by Intelligent Positioning Ltd until 17 December 2015 but began working for Towergate Underwriting Group on 7 December 2015.

Upon starting her employment with Towergate, Riquier selected statement B on her P46, which indicated that her employment with Towergate was her only job. Towergate then applied emergency tax code 1060LX, as it was legally required to do.

This meant that in December 2015, she benefitted from two sets of personal allowances and received an additional amount of income within the basic rate band. This culminated in an under-deduction of PAYE of £827.85.

Failure to declare employment income

Riquier’s 2015/16 self assessment tax return, which was submitted on 24 January 2017, declared £1,000 of foreign income. No employment income was reported.

HMRC opened an enquiry on 12 January 2018 under s9A TMA 1970 and requested further information regarding Riquier’s employment income.

During the enquiry, Riquier expressed concern that the underpayment of tax had been caused by an employer error. HMRC amended Riquier’s 2015/16 tax return showing additional tax due of £1,227.85 (of which £827.85 was attributable to her employment income and £400 to foreign income).

No penalties were charged for the inaccuracies within the return.

Tax bill acknowledged

Riquier agreed that there was an underpayment of £1,227.85 for the 2015/16 tax year. She also agreed that she should pay £400 of that sum which related to her foreign income.

However, Riquier disputed that she was liable for the underpayment of £827.85 relating to her employment income, as she maintained that the mistake was a result of an employer error. If an employer error is the cause of an under deduction of PAYE, there are limited circumstances that may result in a taxpayer not being liable for the underpayment.

Riquier gave several examples to support her position that an employer error had occurred and argued that Towergate should have known that she was still employed by Intelligent Positioning when she started working for them.

Riquier had told her manager at Towergate when she joined that she was on her notice period from Intelligent Positioning and argued that her P45, which was provided to Towergate in January 2016, should have shown that she had two jobs in December 2015.

However, the main issue considered by the FTT was that of her P46 form.

No suitable statement in P46

The starter checklist has since replaced form P46 but both forms ask a new employee to select one of the following statements relating to their present circumstances:

  • A – This is my first job since last 6 April and I have not been receiving taxable Jobseeker’s Allowance, Employment and Support Allowance, taxable Incapacity Benefit, State or Occupational Pension.
  • B – This is now my only job but since last 6 April I have had another job or received taxable Jobseeker’s Allowance, Employment and Support Allowance or taxable Incapacity Benefit. I do not receive a State or Occupational Pension.
  • C – As well as my new job, I have another job or receive a State or Occupational Pension.

Riquier argued that, although none of the options quite applied to her, she regarded statement B to be the best option to select as she was not required to attend work for Intelligent Positioning while on her notice period and, practically speaking, she considered Towergate to be her only job.

Tax return ‘plainly incorrect’

HMRC contended that the only question to consider was whether Riquier had declared all her taxable income in her 2015/16 tax return. As she had failed to declare any employment income the return was ‘plainly incorrect’ and HMRC had issued a closure notice with an amended amount of tax payable accordingly.

HMRC also argued that the underpayment of tax through PAYE was not a result of employer error, as Towergate correctly assigned Riquier tax code 1060LX as a result of her selecting statement B on her P46.

The decision

The FTT found that, as a result of checking statement B, Towergate had correctly operated the emergency tax code, and that this action could not have been undone even if Riquier was known to have had another job before starting work at Towergate.

The FTT also disregarded the matter of the P45 being supplied in January 2016, on the basis that the under-deduction had already taken place by then.

Although form P46 is no longer in use, this case highlights the importance of completing its successor, the starter checklist, correctly, and underlines the need for taxpayers to file complete and accurate tax returns.

Replies (10)

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By Jholm
11th Oct 2019 15:11

What a waste of time and resources for what was only ever going to be one outcome.

Thanks (3)
By ireallyshouldknowthisbut
11th Oct 2019 16:00

Sheesh what a dumb case to take to tribunal.

I trust they are unrepresented, or should be suing their advisor.

Thanks (4)
Replying to ireallyshouldknowthisbut:
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By petestar1969
14th Oct 2019 11:16

ireallyshouldknowthisbut wrote:

Sheesh what a dumb case to take to tribunal.

I trust they are unrepresented, or should be suing their advisor.

She must be unrepresented, how else would her SA return not have the PAYE income on it? Unless she lied to her accountant......hmm

Thanks (2)
By Tim Vane
11th Oct 2019 16:17

Well, given the level of inconsistency in FTT decisions recently it was probably worth a punt for £800. I would not have pushed a client of mine down the FTT route but I would also not have tried to stop her if she wanted to, since there is always a chance that she'll get a lucky break either with a judge who wants to do a bit of HMRC bashing or one who is just in a good mood. FTT decisions are all over the place at times, so if she was willing to give up a few hours of her time what did she have to lose?

Thanks (2)
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By adam.arca
12th Oct 2019 09:03

I think she had no chance (and distasteful as well) in blaming her employer, who had clearly done nothing wrong.

On the other hand, I do have a tad of sympathy as I can see how statement B would look like the right one to Joe Public and it's entirely unreasonable to expect an ordinary person to know how PAYE works in these circumstances.

Perhaps she would have done better blaming the form and then, as Tim says, hoping to get a judge in Revenue bashing mode?

Thanks (4)
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By Matrix
12th Oct 2019 13:01

Once the Dec pay had been processed and the P45 came through then HMRC should have issued a revised code to the new employer which would have been processed before the end of the tax year.

So either HMRC or the new employer are at fault.

However I don’t think this changes the fact that the tax falls due.

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Replying to Matrix:
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By SXGuy
14th Oct 2019 10:49

I disagree, its not anyone fault other than hears, clearly as she filled the p46 wrong.

Had she filled it in correctly, and her employer not use that information to accurately set up her PAYE, then I would agree with you.

Infact I had a case some years ago, where the employee had correctly filled out a P46, but the employer ignored it, and in that scenario, the employer was liable for the underpaid tax.

But in this case, ultimately, she completed it wrong, and so the employer can not be at fault for setting up her PAYE on that basis.

There may be an argument regarding HMRC, but still, I wouldn't like to try and argue that point, given the above.

Thanks (2)
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By Myshkin
14th Oct 2019 09:43

The problem is that A to C have never covered all circumstances. Had she said she had another job she would have been on basic rate to March then had to wait another 6 months minimum before she got her over paid tax back. But yes she should have admitted the error when she got her annual statement - but that comes out in October!

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Replying to Myshkin:
By Duggimon
14th Oct 2019 12:17

She was filing SA returns, she could have claimed back any overpaid tax on 6 April.

What a spurious waste of time and resources, how stupid does an appeal have to be before the appellant is compelled to pay the costs as well?

She filled the form in wrong, then filed an incorrect tax return then, despite not having been penalised for either error, tried to have her (presumably former) employer foot the bill for the tax she quite rightly owed.

Thanks (3)
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By rememberscarborough
14th Oct 2019 21:40

Anyone who's ever changed jobs during the month will have been through this situation. The old employer will process the final wage with one lot of tax allowances and the new one will do the same. Just accept you'll get a short term boost and then pay the tax when HMRC send the bill. To take this to a tribunal smacks of a deliberate waste of time and money.

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