Help! Incorrect tax code last 3 years!!

BARGAINHUNTER!

I am asking this question on behalf of a friend of mine. They work for the civil service. 3 years ago they transferred from an Agency back to the core Department. Upon transferring his pay increased slightly. he has also had pay rises during the last three years. He was talking to his collegue the other day about pay and they were discussing tax codes. It turns out my friend had the tax code 'BR' . He decided to phone the Inland Revenue to find out why it was different from his collegues. Inland Revenue told him BR was the tax code used when someone has a second job. My friend does not! They delved into it deeper, and the lady at the Inland Revenue discovered that when he transferred from the Government Agency back to the Core Department 3 years ago, the Government Agency did not inform the Inland Revenue. The Core Department put him onto their payroll system, and the Inland Revenue assumed that this was his second job and was taxing him accordingly, even though he was of course not being paid anything by his supposed 'first job' and was no longer on their payroll system!!

Now this has caused a bit of a problem, firstly with where the blame lies (my friend is aware that he should have checked his tax code) and secondly with a potentially large tax bill looming. My friend earns about 50k, so should have been taxed as a higher rate tax payer, but hasn't been for the last 3 years. Apparently, a second job means that you just pay a flat rate of basic tax? The Government Agency are at fault for not passing on the correct information to the Inland Revenue, and the Inland Revenue are at fault for not realising that the 'first job' where he was supposed to be paying higher rate tax he was not earning a penny, and his 'second job' where he was earning enough to be paying higher rate tax he was just being taxed at a basic rate. What has happened is that instead of earning so much tax free, then another lot taxed at basic rate, then the rest taxed at higher rate he has been taxed basic rate on the lot if that makes sense.

The question is where do you think he should go from here? He is waiting for the Inland Revenue to calculate the cost of the mistake. Do you think he will be able to negotiate with them? Will he have to pay it all back at one or will they allow him to spread the payments throughout the next 3 years (the length of time this mistake has gone un-noticed?) Or do you think that they will just write it off?

On behalf of my very worried friend, thank you for reading!! And he knows that the onus is on him to have checked his tax code was correct - but he literally transferred from one part of a Government Ministry to another so thought that everything would be the same. As he was being paid a bit more upon transfer the amount he was being paid each month didn't strike him as odd.

Mikeyorks

The onus for correct operation of PAYE rests with the employer. And HMRC can determine the employer pays any underpayment resulting from careless / inappropriate operation. However, I doubt your friend would benefit from such a determination as the view would normally be taken that he should have been aware the Code number was incorrect - and taken steps to remedy the situation. Particularly as he was into 40% and should have been advising HMRC of any extra tax due on savings / investment income? So some sort of realisation should have emerged from that.

But all of that is a bit academic - as I think the overall effect is that he will be due a refund! Play around with the calculator (link below) and you will see (put in Code BR and then 603L) he is on track for an overpayment of close to £2400 this year (to Apr 09). And will have overpaid £2100 in 2007-08 if he was on BR (I've used £50k - but probably a bit less?) as opposed to the more correct 522L.
The reason being that he has not only (prior this year) been paying 22% for the whole of his 0% band - but also 22% against the 10% band that existed up to April 08.

http://www.listentotaxman.com/

BARGAINHUNTER!

Thank you very much - I have passed this info onto my friend. I knew someone on here would have the answer or know where to find it!!!