Tax underpayment: employer error

Windsorcastle

I have had an ongoing saga with a tax calculation I received last year, claiming I underpaid over £3000 tax in the year 2007/2008. I originally claimed the ESC A19 clause as I know that all my end of things was in order. After huge amounts of correspondence and phone calls, HMRC have finally phoned me to say that they have identified this as employer error. Basically I changed job during that tax year and gave the new employer my P45 but they somehow failed to use that info to tax me correctly.

HMRC are now contacting my employer again about this but what should I do? What if the employer refuses to pay? And will they try to claw the money back from me even though they made the error and I supplied my P45? In which case, I'm no better off if I still have to repay this through no fault of my own. I have been really stressed and worried about this since it first came to light a year ago.

Can anyone please clarify my position?:(

agrinnall

Worst case is that you've had an interest free loan of £3000 for the last 4 years (assuming they are only asking for the tax at this stage). Others will be able to advise you better on whether you have an ESC19 case, but the general pricipal is that it's your tax, not the employer's, and it's your responsibility to ensure that it's correct. I would have though that paying £3000 less tax than you should have done ought to have been reasonably obvious unless you were on a huge salary.

Mikeyorks

http://www.hmrc.gov.uk/manuals/pommanual/PAYE95011.htm

The above constitutes the internal HMRC guidance. But if the employer subsequently proves they acted 'in good faith' then HMRC could still direct you owe the outstanding amount, as follows :

HMRC will consider the explanation given by the employer or pension payer. If HMRC agree that the employer or pension payer has made an error in good faith and they have a reasonable explanation, then HMRC may direct that you should pay the under-deducted tax. That Direction will carry a right of appeal if you think that HMRC have made the wrong decision. The appeal procedure will be detailed in any Direction Notice sent to you.

System

Even if HMRC say they are contacting your employer I would still write to them appealing the underpayment as Employer Error. You can see what counts as employer error here - http://www.hmrc.gov.uk/thelibrary/tax-paye/employer-errors-deduction-paye.pdf

HMRC will contact the employer and ask them why/how the error occurred. The link above shows what will happen.

One thing though, and I appreciate it was some years ago, when your new employer started paying you and failed to use the P45 you gave them did you not think it odd that no or very little tax was being deducted from your pay compared to your previous job?

Windsorcastle

Thanks to all for responding so far. What happened is that the new employer had my P45 but taxed me as if my new salary was the only income I had received in that tax year, whereas I had of course been receiving a salary from my previous employer, hence the correct info on my P45. In all honesty, it never occurred to me that I was underpaying because I had moved to a considerably better paid job, so I jsut assumed that was why I had more money in my pay packet each month. I've always trusted that my employer is deducting the correct amount of tax as I've never had a problem before in over 20 years of employemnt and I had not done anything irregular.

Windsorcastle

I have read about the 'in good faith' defence. But how can my employer say they acted 'in good faith' when they were blatantly negligent in calculating that I had already received income from the year, as the P45 obvioulsy came from my last employer?!

Windsorcastle

The tax code on my pay slips was the correct one, so there was nothing fishy to alert me that anything was awry. I was on a better salary in my new job so I would have expected to net pay to be greater anyway. I absolutely had no idea there was anything wrong.

Mikeyorks

Windsorcastle wrote: »

But how can my employer say they acted 'in good faith' when they were blatantly negligent in calculating that I had already received income from the year, as the P45 obvioulsy came from my last employer?!

Because everyone makes errors occasionally.

Just as you did in assuming that all the extra in your take home pay was merely down to the increased salary? Bearing in mind that £3k is a significant extra when considering it only spanned a part year.

HMRC will take into account if that employer has had other issues with PAYE operation.

chrismac1

In my view there is a significant difference between the OP and his employer. His employer either employs or hires (if using an external accountant) someone who understands PAYE , tax codes and so on. Hence that person has a greater duty of care than the average employee. So if this turns out to be a finger pointing exercise as so many of these do, the prime fault must lie with the employer. Within my own client base I've had reason to point out to various employers that they had my client on the wrong tax code or had got the P11d wrong.

That said, the real culprits are the politicians - egged on by HMRC - who've made all this stupidly complicated. Just company car tax alone has become an utter farce in the last 20 years. So there are more ways to go wrong, especially when you consider that often fairly inexperienced people are handling payroll for 20 to 30 people.. God help us all when the real-time payroll thing comes in.

BoGoF

chrismac1 wrote: »

That said, the real culprits are the politicians - egged on by HMRC - who've made all this stupidly complicated. Just company car tax alone has become an utter farce in the last 20 years. So there are more ways to go wrong, especially when you consider that often fairly inexperienced people are handling payroll for 20 to 30 people.. God help us all when the real-time payroll thing comes in.

Another pointless rant that in no way helps the OP, if you have no actual advice then perhaps you should not post.....you are boring us all to death now.

To the OP, on the face of it the employer is at fault but if the 'in good faith' argument is successfully made by the employer we are back to you being potentially liable. I know you have said you believed your tax affairs were in order but can you really say that when, as others have said, your pay would suddenly have increased. I assume also your payslips would show taxable pay to date, when this did not show your previous earnings perhaps alarm bells should have been ringing....just my tuppence worth.

Mikeyorks

chrismac1 wrote: »

That said, the real culprits are the politicians - egged on by HMRC - who've made all this stupidly complicated. Just company car tax alone has become an utter farce in the last 20 years. So there are more ways to go wrong, especially when you consider that often fairly inexperienced people are handling payroll for 20 to 30 people.. God help us all when the real-time payroll thing comes in.

It's a P45. What does that have to do with politicians or company car tax?

The employer made an error. And HMRC will determine if that was unusual - or whether the employer has a history of negligence.