PAYE tax code error resulting in £9k tax underpayment - please advise...

gecko_

Hi there, I really hope someone can help me with some advice.

I got made redundant 2 months ago and last week I received a letter from HMRC highlighting that I owe just under £9,000 in unpaid tax covering a 2 year period. I was not expecting this at all - I had been with the same employer for just under 4 years and always on PAYE. It was my only income with no complications like pensions involved.

So I dug around and spent the weekend investigating what had gone wrong. I have absolutely no problem paying what I owe, and discovered that indeed HMRC have calculated things correctly. Basically for my entire employment I was put on tax code BR - I've only just learnt that this means Basic Rate which is a straight 20% tax. For the first half of my employment I was earning under £35,000 so 20% would have been fine(ish) - but for the second half of my employment I was on a fair bit more than this made up of extra bonuses.

It seemed a little unfair that all of a sudden I am placed into hardship and a stressful circumstance for what seems like an error in updating my tax code - which is not my fault or responsibility - I don't think I even can. My understanding is the HMRC should of informed my employer of my tax code and my employer should of amended my tax payments accordingly. So I called HMRC and they informed me that over 2 years ago they indeed on multiple occasions sent tax code change requests to my employer (to the correct address) but none of these were ever actioned.

I managed to speak with my previous employer who basically took the stance that nothing was received from HMRC (must of been lost in the post) so they say they are not at fault - my tax my problem kind of thing.

My issue is that between HMRC and my employer someone clearly made a mistake, didn't do what was required, was incompetent or negligible to lead me to be put in a really stressful, hardship and unfair situation.

So what do I do? I have written to HMRC asking them to investigate my employer for not updating the tax codes as required of them - but I predict I will be in a situation where HMRC blame my employer and my employer blame HMRC with me stuck in the middle.

Q1 - Do I have any right to refuse to pay based on someone else being responsible for making such an error.

Q2 - Do I have the right to claim against either party even if I pay what I owe or not. A form of compensation for putting me in this situation - something that may ease the blow.

I'd really appreciate help here. I don't mind having to pay my taxes - I owe them after all. If I have to setup a form of repayment scheme with HMRC over a period of X number of years then that's fine. But I strongly feel that I have been put in this situation by another party making a big mistake that surely they have to be accountable for...

nannytone_2

it isnt as straightforward as that.

the BR taz code is also known as emegency tax.
they tax your from the first penny you earn, instead of giving you your tax allowance.

you need to go back and find out how much you earnt in each year in question and then find out what the tax codes were for those years.

last year was 747 and this year is 810

if we assume that you pay basic rate tax ( i know you siad you earnt more, but just an example)
last year your overpaid tax would jave been 7,470 x 20p.

you really need professional help sorting this out

jem16

gecko_ wrote: »

I've only just learnt that this means Basic Rate which is a straight 20% tax. For the first half of my employment I was earning under £35,000 so 20% would have been fine(ish) - but for the second half of my employment I was on a fair bit more than this made up of extra bonuses.

Higher rate tax threshold starts at approximately £42,475 so presumably you have earned over that and should have been paying some of your income at 40%.

It seemed a little unfair that all of a sudden I am placed into hardship and a stressful circumstance for what seems like an error in updating my tax code - which is not my fault or responsibility - I don't think I even can.

You can't change it no, but what you should have done was noticed it was wrong. BR is not a standard tax code and would normally only be used for people with a 2nd income.

So why were you on a BR code in the first place? Usually this happens when you start a job and have not handed in a P45 or completed a P46. That is certainly your responsibility.

My understanding is the HMRC should of informed my employer of my tax code and my employer should of amended my tax payments accordingly. So I called HMRC and they informed me that over 2 years ago they indeed on multiple occasions sent tax code change requests to my employer (to the correct address) but none of these were ever actioned.

So did you receive P2 coding notices at the time? If not why not?

I managed to speak with my previous employer who basically took the stance that nothing was received from HMRC (must of been lost in the post) so they say they are not at fault - my tax my problem kind of thing.

I believe they are normally sent to the employer electronically.

My issue is that between HMRC and my employer someone clearly made a mistake, didn't do what was required, was incompetent or negligible to lead me to be put in a really stressful, hardship and unfair situation.

Part of it seems to be possibly also down to you.

Q1 - Do I have any right to refuse to pay based on someone else being responsible for making such an error.

You could try but you would need to prove such an error and to be able to show that you felt your tax affairs were in order. With a BR code that's a little hard to prove.

gecko_

Thanks for the reply. HMRC are sending me approx £1,250 covering off the total of my tax free allowance that 20% was taken from.

I don't know where I go for professional advice on this. I cannot afford it in my current situation of being without work.

The BR code was applied for my entire employment and HMRC say they sent requests to my employer to change this after a few months of me starting work there. I have no idea what they were trying to change this to as I was not sent anything at all at any stage to indicate anything was wrong.

jem16

nannytone wrote: »

the BR taz code is also known as emegency tax.

No it isn't the emergency tax code. It's a tax code normally used for 2nd incomes and for those who don't complete a P46 or hand in a P45 from a previous employer.

This year's emergency tax code is 810L but taxed on a non-cumulative basis as opposed to the normal cumulative basis.

nannytone_2

its thee same difference .... you get taxed from the first penny earned with no tax allowance

jem16

nannytone wrote: »

its thee same difference .... you get taxed from the first penny earned with no tax allowance

It's not the same difference. It's vastly different.

The emergency code gives you a personal allowance whilst the BR code does not. The emergency code will also allow higher rate tax to be taken appropriately whilst the BR code does not.

If the OP had been put on the true emergency tax code s/he would not be in this mess.

nannytone_2

i may not get the inticacies of the tax system, but i gave good advice and didnt just go on about why the OP didnt notice

gecko_

jem16 wrote: »

Higher rate tax threshold starts at approximately £42,475 so presumably you have earned over that and should have been paying some of your income at 40%.

Correct!

jem16 wrote: »

You can't change it no, but what you should have done was noticed it was wrong. BR is not a standard tax code and would normally only be used for people with a 2nd income.

I don't understand why I should have spotted this. PAYE should be looking after this for you. I've never been notified of this being incorrect - I didn't know it wasn't a standard tax code until 2 days ago.

jem16 wrote: »

So why were you on a BR code in the first place? Usually this happens when you start a job and have not handed in a P45 or completed a P46. That is certainly your responsibility.

I handed in my P45 when I started my job 4 years ago. No one said there was a problem with it in the last 4 years.

jem16 wrote: »

So did you receive P2 coding notices at the time? If not why not?

I have not received anything from HMRC regarding a change of Tax code or a P2 and i have no idea why.

jem16 wrote: »

I believe they are normally sent to the employer electronically.

Good - so this would be my proof - If HMRC did in fact send my employer this information and they failed to act on it then surely I have a case against my employer?

jem16 wrote: »

Part of it seems to be possibly also down to you.

Maybe - but to be honest I am the average guy who knows nothing about Tax so would not know what to check? Are you suggesting that the average PAYE worker gets an accountant to double check their employers payroll system and the HMRC are doing everything correct? This seems strange?

jem16

nannytone wrote: »

i may not get the inticacies of the tax system, but i gave good advice and didnt just go on about why the OP didnt notice

No-one is suggesting that you did not give good advice about seeing someone professional.

However the intricacies of the tax system and the possible use of ESC A19 is what is important to the OP getting out of this mess.

My questions to the OP were going down the same line as HMRC would be going and are important. Unfortunately ignorance is not a defence in HRMC's eyes.

jem16

gecko_ wrote: »

I don't understand why I should have spotted this. PAYE should be looking after this for you. I've never been notified of this being incorrect - I didn't know it wasn't a standard tax code until 2 days ago.

I did read your reply about keeping on topic before you deleted it. Please be aware that I'm not getting at you but trying to ascertain the facts to see if ESC A19 will help you here.

UK tax is such that it is your responsibility to make sure that you are taxed correctly and unfortunately HMRC do not accept the fact that it's nothing to do with you as a defence. Everyone is expected to know about the basic personal allowance and the basic tax code to ensure that they are being taxed correctly.

I handed in my P45 when I started my job 4 years ago. No one said there was a problem with it in the last 4 years.

Do you know what the tax code was then?

I have not received anything from HMRC regarding a change of Tax code or a P2 and i have no idea why.

Have you changed address in the last 4 years. If you have not received a P2 Coding Notice I would certainly be asking HMRC why this has not been received by you as this would have allowed you to realise that something was not correct with your tax code.

Good - so this would be my proof - If HMRC did in fact send my employer this information and they failed to act on it then surely I have a case against my employer?

Yes. However that was why I asked if you had handed in a P45 or completed a P46. Without either of these happening, your employer would have been correct in using the BR tax code initially.

If after that, they did not use a tax code that HMRC issued you would have every right to complain that employer error caused the underpayment. Have a read here;

http://www.hmrc.gov.uk/thelibrary/tax-paye/employer-errors-deduction-paye.pdf

I think this should be your starting point for a complaint.

Maybe - but to be honest I am the average guy who knows nothing about Tax so would not know what to check? Are you suggesting that the average PAYE worker gets an accountant to double check their employers payroll system and the HMRC are doing everything correct? This seems strange?

No I'm not. I'm saying that the average person should be able to ensure that the correct tax code is being operated each tax year. For most people this is in line with the personal allowance. So for example this tax year it's £8105 so the tax code for the normal under 65 will be 810L. If it's not that, you should be finding out why. This is nothing to do with tax tables or employer's payroll systems.

Can you clarify what 2 years the underpayments have arisen from? Figures would also help to ensure that HMRC haven't made any mistakes as well which does happen.