Tax Relief Error

coachtug

Hi

A few years ago my company realised that they had been giving us tax relief on our personal pension contributions in our PAYE salary, whilst at the same time we were getting tax relief paid into our pension on top of our contributions.

So we were getting two doses of tax relief. This was an error on the part of the company.

The PAYE tax relief was stopped and we continued to receive the tax relief into our pension plan.

I assume that therefore there is a shortfall that I owe HMRC.

However the company wants us to give it permission to take the money out of our pension plan which it says it will then use to settle the shortfall with HMRC.

I would imagine that the overall shortfall for the company is very large as it has been going on for at least 6 years and they employ 50-100 people, but it was their mistake.

I'm very dubious about giving them permission and would rather settle with HMRC myself.

My question(s) are this:

1. Do I have to allow them to take the money from my pension? Note that this was not the error, the error was with PAYE.

2. If the mistake has been going on for some time, how far back could I be liable? In my case the error was from 2005/06 to 2011.

3. How can I find out if HMRC are even aware of this error? Afterall how do I know that the company has even informed them?

4. If I go to HMRC myself will I be able to pay via installments?

Thanks for your help

dunstonh

A mistake does not grant you free money. Things normally need to be put back in place as they should have been with as little inconvenience as possible.

1. Do I have to allow them to take the money from my pension? Note that this was not the error, the error was with PAYE.

If you want to pay by cheque you probably can. You need to ask them.

2. If the mistake has been going on for some time, how far back could I be liable? In my case the error was from 2005/06 to 2011.

Tax tends to be 6 years from when identified.

3. How can I find out if HMRC are even aware of this error? Afterall how do I know that the company has even informed them?

Ask them.

4. If I go to HMRC myself will I be able to pay via installments?

HMRC dont normally go for that sort of thing unless it is their error. It may be cheaper to go via the pension. Especially if it means cancelling units as if they were never paid. I would be checking to see what method they are going to use if I was in your shoes. Cancelling units and backdating them to use historical prices could well be favourable. Taking it off your current value and not backdating prices may be more expensive.

mania112

I would ask for clarification in writing from your employer to fully understand what went wrong.

PAYE is an online calculator. The payroll person/team enters in your salary (presumably divided by 12 for monthly) and your tax code the system tells them what to pay you and what is owed to HMRC.

Pension contributions from you personally, from your own bank account, can't possibly be confused with this (in my mind). I can't see how that happens.

So if we're talking about employer contributions - If you're saying that their contributions to your pension have been taxed incorrectly - this must mean [STRIKE]the employer has paid a contribution[/STRIKE]...

Sorry, I can't see how this has happened! Employers pay contributions gross, including the tax relief, and reclaim back at the end of the tax year.

... I don't think i've been much help!

jem16

mania112 wrote: »

Sorry, I can't see how this has happened! Employers pay contributions gross, including the tax relief, and reclaim back at the end of the tax year.

The OP appears to be talking about his own contributions to a personal pension scheme ( probably a group personal pension) where the employer would normally deduct the contribution from net salary. In this case basic rate tax relief would be added by the pension provider.

It sounds like the contributions were mistakenly taken from gross salary which gives automatic tax relief as it reduces the taxable amount.

coachtug

jem16 wrote: »

The OP appears to be talking about his own contributions to a personal pension scheme ( probably a group personal pension) where the employer would normally deduct the contribution from net salary. In this case basic rate tax relief would be added by the pension provider.

It sounds like the contributions were mistakenly taken from gross salary which gives automatic tax relief as it reduces the taxable amount.

Yes thats correct.

I'm no tax or PAYE expert but I appear to have had the same benefit twice but I really dont want to allow the company to take money out of my pension, they've messed it up once and I want to be sure the matter is resolved fully and not have the taxman chasing me in 5 years time.

Just because they (the company) want the money off me is no guarantee that the taxman will get it.

Will ring HMRC helpline but not sure if they will know or be able to comment on the problem.

jem16

coachtug wrote: »

Yes thats correct.

I'm no tax or PAYE expert but I appear to have had the same benefit twice but I really dont want to allow the company to take money out of my pension, they've messed it up once and I want to be sure the matter is resolved fully and not have the taxman chasing me in 5 years time.

I would be inclined to leave the pension alone as it should really be correct with tax relief added to the net pension which is what should happen with a personal pension.

It's really your tax position that's wrong as for the last however many years you have paid too little tax for your taxable income.

What did your P60s show?

Normally with a pension scheme paid from gross salary, the P60 would show taxable income as gross income less pension contributions. In your case the P60 should show gross salary.

coachtug

Thanks Jem16 - I'll dig out my P60s and have a look through them.

jem16

coachtug wrote: »

Thanks Jem16 - I'll dig out my P60s and have a look through them.

Post the figures if it helps.

Tax can only go back 4 years now so you can only go back to tax year 2008/9 and only up till 5th April 2013. After that 2008/9 drops off.

I would have thought that if HMRC are aware of this error, you would have received a P800 by now.

coachtug

I was informed about the error in July 2011 and they asked for the money from my pension last October. So does the 4 year rule go back from July 2011 or from now?

jem16

coachtug wrote: »

I was informed about the error in July 2011 and they asked for the money from my pension last October.

I assume this was the company that informed you?

As HMRC will have had all the info via employer returns, I would have expected HMRC to have contacted you with a P800 if they were looking for unpaid tax. Sounds like it's the employer's return that is wrong.

So does the 4 year rule go back from July 2011 or from now?

From now.

coachtug

jem16 wrote: »

I assume this was the company that informed you?

As HMRC will have had all the info via employer returns, I would have expected HMRC to have contacted you with a P800 if they were looking for unpaid tax. Sounds like it's the employer's return that is wrong.



From now.

Thats interesting, I've heard nothing from HMRC and I even spoke to them about claiming 40% tax relief so I assume that they would have looked at my numbers then.
So I could be in the clear but the company hasn't paid HMRC enough?
If I am in the clear with my tax, could the company be looking to recoup any money they can to offset their mistake? (which was my suspicion)