Underpaid PAYE Tax - Shock £2k bill!! Beware...

Danno_Collins

I have recently been contacted by HMRC about an underpayment of tax in 08/09 and in 09/10 equating to around £2k.

I have since spoken to one of their customer service people, and they say it's down to payments being made after I'd moved to another job (after P45 has been issued), and therefore not being taxed appropriately at the time...

I am keen to know who's responsibility that would be? HMRC, previous employer or me?

If anyone has any experience of this, or knows a reference point to look at, I'd be eternally grateful. They've hit me for a £2,000 bill, to be paid over the coming tax year, and am not too pleased!

Help!!!!!

Pennywise

You need to locate exactly what went wrong. It sounds as if it's to do with your P45. So....

First things first, is it actually correct? HMRC don't always get it right - it's possible that the figures they're using on those tax computations aren't right. So check them against your P45, P60s etc to make sure that they havn't double counted any of your income or taxed you on benefits you havn't received, or are including someone else's income as well as or instead of yours.

Assuming their figures are right, then the next stage is to work out why you weren't taxed enough. To do this, answer the following:-

Did you hand your P45 to your new employer?

If so, did they process it properly?

Did they send it to HMRC to advise HMRC of the change in employer?

What tax code was on the P45 and what tax code was on your payslips (old and new employer)?

Did HMRC issue a tax code notification to your new employer?

Did either your old or new employer provide any taxable benefits, i.e. company car, low interest loans, BUPA, etc.? If so, did they prepare and submit P11ds to HMRC for each year?

As things stand, the fault could lie with you, your new employer, HMRC, or your old employer. You need to find out who before you can even think of the next steps to take.

What does surprise me is that it's for two years. A P45 problem usually doesn't cause an underpayment in more than one year as it's usually down to prior employment pay of the same tax year not being taken into account. I wonder if it's due to taxable benefits in kind which would explain why it spans two tax years?

Danno_Collins

Thanks Pennywise... I know for certain that I always passed on a P45 to my new employer, so as far as I know my tax affairs were up to date. The only thing I can think of was that I was paid commission payments after my P45 had been submitted, and therefore would not be accountable... or picked up by my new employer.

However, I've only just been made aware of this loophole... so still unsure of where the blame lies, as surely a P45 cannot be raised until a final payment has been made?

It's very strange indeed, so I will check all my details and see whether there is an error. If not, then I'll need to write to them (as they've advised).

Thanks again for your help!

chrismac1

"payments being made after I'd moved to another job"

This is not all that unusual, for example a bonus payment made after the tax year-end. By definition such payments do not appear on your P45 which will have been filed with HMRC during or shortly after the end of the tax year in question.

If a payment was made to you after the P45, this is what your employer was required to do:

1. Deduct any tax due.
2. Write to HMRC quoting the correct tax refs, your name and NI number, gross paid and any tax deducted.

Note that if the payment was made in 09/10 even though the P45 was 08/09 this explains why it is 09/10 which is affected.

So the detective work needed here is:

1. Did your employer write this letter? If so when? (In all courtesy it should have been copied to you.)

2. You need a copy now so you can see if the tax bill is correctly calculated.

3. Clearly HMRC have this information now, or they'd not have written to you.

Because of redundancy I have several clients in exactly this position, some whose P45s were in 10-11 and some in this current tax year. But note the following:

For those whose P45s were in 10-11, and whose final payments were in 11-12, their 11-12 tax is taking care of all of this - either through PAYE coding or self-assessment. This is what should have happened to you in 09/10.

It's possible it did and that HMRC have got their sums wrong, it's equally possible that an error or omission by either your employer or HMRC means that HMRC have now got their sums right.

Danno_Collins

Great thanks Chris Mac1, really appreciate the help... just moved into new house, and could really do without the extra tax being taken next financial year!

I'll do the detective work...

However, what happens if you can't get your hands on the information? It was quite some time ago now. I am guessing HMRC will be reluctant to share information with me that supports my case...

What a nightmare all of this tax is! I'd hate to think all the people that will just pay and not challenge it. HMRC should be going after real tax fraudsters, and not good honest people that have always paid PAYE and NI!!

Mikeyorks

Were you in the 40% bracket at the time? And was the commission only paid with 20% deducted?

Danno_Collins

Hi Mike, thanks for your reply. I need to do more research, but from what HMRC said... 08/09 is was in 20% and the commission paid afterwards took me into the 40% bracket. But also something about my employer changing the correct code to a BR code... whatever that means!

chrisbur

Danno_Collins wrote: »

Hi Mike, thanks for your reply. I need to do more research, but from what HMRC said... 08/09 is was in 20% and the commission paid afterwards took me into the 40% bracket. But also something about my employer changing the correct code to a BR code... whatever that means!

This may be refering to the instructions to the employer on how to deal with a payment made after the P45 is issued. The current instructions are.....

"If you have already given an employee a form P45

you should deduct PAYE using code 0T

(non-cumulatively) using the normal pay period for

the employee (for example, monthly or weekly), at the

time you make the payment. Write code ‘0T’ as the

amended code on form P11 and enter details of the

payment and PAYE deducted.

In such cases, you should provide the employee

with documentary confirmation of the payment (for

example by letter, payslip or other printed/printable

document) giving the following details:

• the date of the payment(s)

• the gross amount of each payment

• the amount of PAYE deducted from

each payment

• confirmation that the payment is a post

leaving payment.

You must not give the employee another form P45.

You do not need to notify us at the time of making

the extra payment, although you must ensure that it

is recorded on form P14 at the end of the tax year."

The code to use now is 0T which in most cases would at least reduce the under-deduction of tax if the employee went into the 40% band, but at the time this happened to you the code to use was BR.

Also as you can see the employer does not need to tell the tax office at the time it happens just ensure that the figures are included in the end of year return. So it is unlikely you will have any copy of a letter to the tax office just some sort of advice from your employer which may just be an extra payslip issued after you left.

Of course if you want to be sure of what has happened you need to post full figures of pay, tax, and tax code from both the P45 payment made after it's issue and your new employer.

Danno_Collins

Thanks Chris, does this mean that underpayment was the fault of my employer not recording the post-P45 payment properly? Not sure I understand...

Trying to work out who has the responsibility, and therefore who should pay the difference. As I feel that I did everything correctly and to the letter, and feel aggrieved that HMRC have sent a £2k bill!

chrisbur

Danno_Collins wrote: »

Thanks Chris, does this mean that underpayment was the fault of my employer not recording the post-P45 payment properly? Not sure I understand...

Trying to work out who has the responsibility, and therefore who should pay the difference. As I feel that I did everything correctly and to the letter, and feel aggrieved that HMRC have sent a £2k bill!

Without knowing the full pay and tax details I cannot say. But it is the case that with everyone doing exactly what they should there are circumstances when the tax deducted will not be correct and this will not be discovered untill all the details are checked after the tax year end.

Danno_Collins

But should HMRC be able to wait 3 years to process and ask for payment? That's my issue, that I've been honest and paid tax via a code designated by my employers and HMRC. I am not an expert in tax, and therefore cannot be held responsible if they fail to take the right amount.

Looking forward to research to see where it failed. Again, thanks for all your help!