PAYE error

coachtug

I was recently informed by my employer that I had received tax relief on my pension contributions via both PAYE and on my contributions to the pension plan.

I have checked my P60s and payslips and can confirm that my P60 shows my income after my pension contributions were deducted.

My pension statements also show tax relief being added to my personal contributions.

This error was made by the company, although they haven't admitted it. Since the error was discovered the PAYE has been correctly calculated.

However the company want me to authorise them to deduct the amount (£2.5k) from my pension to use to refund HMRC, for the original shortfall.

This error has effected all employees and some ex-employees. I have since left the company but they are still chasing me.

I haven't heard from HMRC.

What should I do?

CLAPTON

if the situation was reversed and they had deduced tax twice who you expect a refund?

coachtug

CLAPTON wrote: »

if the situation was reversed and they had deduced tax twice who you expect a refund?

I'd expect HMRC to contact me and send me a cheque.

Which is my point, I havent heard from HMRC, only from my ex-employer.

My suspicion is that HMRC have approached my ex-employer as it was their error and my ex-employer has a big bill to pay and is hoping to recoup anything it can via the employees. If I have read the link below correctly it is the employer who is liable.

http://www.hmrc.gov.uk/manuals/pommanual/PAYE92066.htm

Otherwise HMRC would approach me directly?

McKneff

No, if you owe the money, you have the liability.

Doesnt matter who made the mistake. You are the one who has had the extra revenue. You have to pay it back

John_Pierpoint

When did the "c0ck-up" occur?

Generally speaking mistakes can be corrected any time within 6 years - unless you are HMRC that is. [One rule for the government another rule for the proles]

Nothing to stop your employer coming after you, presumably the missing tax is currently owned by you not the pension fund? - who owns the pension fund?

jamesd

PAYE was being operated NI for the full gross pay, income tax for the after pension portion. The pension contributions were being treated as net and basic rate tax relief was being claimed for them within the pension. An easy mistake to make, as simple as ticking the wrong box when setting the scheme up.

Naturally the pension company and employer need to undo the tax credits that the employees were claiming via the pension scheme since the 2005/6 tax year. The pension is a personal pension, so group personal pension presumably, which means individual contract between employee and pension company.

coachtug has an additional complication, as a higher rate tax payer who only told HMRC last year.

John_Pierpoint

Is my summary here correct?

The employee has been receiving tax relief at 20% or 40% by paying 100 units of excess income into a pension fund, using his company's payroll system. The 40% relief being automatic in the years when his gross pay would have boosted him into a higher rate tax payer.

Meanwhile the pension provider has been claiming 20 units of currency back from HMRC.
Logically this 20 units of currency should be paid back by the pension company?

Personally I would take the attitude that the pension company, with whom I have an ongoing relationship, will sort out this mess and I am not paying any money to anyone until the pension company give me a nice reconciliation statement of exactly what it intends to pay to HMRC.
[In the mean time the pension company has been investing the 20 units of currency (and deducting fees and paying commissions ?) on this sum and I would expect these to appear in the reconciliation too. Only then would I authorise anyone in these organisations who have been bumbling about getting it wrong for years, to touch my money. Their mess their problem.
Mentioning, possible legal advice costs and free publicity naming individuals for the organisations involved might help to concentrate minds ]

Anyone remember AVCs and Free Standing AVCs ?

coachtug

Obviously I'm a bit bemused by the whole thing hence my post.

I think you are almost right John, although HMRC are chasing the employer not pension company.

The error has been going on since at least 2005 (probably before but I wasnt there then) and was rectified late 2010, we were informed in 2011. The company employs 80-100 people so potential £250k !!!! up?

The rectification caused the PAYE to shift so that we paid tax on the full income and continued to receive tax relief at pension. So I think the error was with PAYE rather than pension.

Which means its the company at fault rather then pension provider?

jamesd

The company is at fault however it happened, it's the company that said how the pension contributions should be treated, whether they were eligible for tax relief.

With the proposed pension solution the only real losers are HMRC and tax payers as a whole, who may accept effectively giving higher rate tax relief to people who hadn't claimed it.

coachtug

I only claimed high rate relief for time when I was entitled.

HMRC should get their money back, from the company, who made the error.

But my suspicion is that the company is trying to get back what they can from employees, even though the employees are not liable for the employers error. Worth a punt on their part but I'm beginning to suspect thats all they can do.

Savvy_Sue

I can't pretend to follow all of this, but just to put something else in the mix ...

We had a mistake at work where our payroll provider treated them as one sort of company pension when they were actually Stakeholder. As a result, we didn't have as much tax deducted as we should have had.

However, when I spoke to HMRC about this, their position was that the employer had to take the hit for previous tax years, not the employees.

I don't know if the situation here is comparable?