Employer made a mistake with redundancy calculation. Now HMRC want the money

westerngal

Hi, my husband was made redundant last year (March 12) and received a large redundancy payout (he had been with the employer for 25 years!).

It seems that his employer however made a mistake and didn't calculate the tax correctly. Because the payout was large, it seems that my husband would not have been entitled to his PTA allowance. But payroll didn't know this (neither did we until recently) and they allowed him his PTA before calculating tax.

HMRC are now demanding the shortfall of £4000.00

My question is this: If the error was made by the employer then shouldn't they be liable?

HMRC only informed us a week ago about the underpayment and are demanding the money immediately.

I don't know whether it's relevant but even though my husband was paid via PAYE, he does also have to complete a SA

thanks

Dazed_and_confused

westerngal wrote: »

Hi, my husband was made redundant last year (March 12) and received a large redundancy payout (he had been with the employer for 25 years!).

It seems that his employer however made a mistake and didn't calculate the tax correctly. Because the payout was large, it seems that my husband would not have been entitled to his PTA allowance. But payroll didn't know this (neither did we until recently) and they allowed him his PTA before calculating tax.

HMRC are now demanding the shortfall of £4000.00

My question is this: If the error was made by the employer then shouldn't they be liable?

HMRC only informed us a week ago about the underpayment and are demanding the money immediately.

I don't know whether it's relevant but even though my husband was paid via PAYE, he does also have to complete a SA

thanks

I think you have misunderstood how the tax system works. Your husbands employer cannot just change a tax code when they feel like it. As he was not a new starter and had been employed by the same firm for 25 years the tax code for 2011:12 would normally have been calculated by the tax office based on his previous earnings history.

From what you say (I guess by PTA you mean Personal Tax Allowance) it sounds like his income suddenly jumped to in excess of 100k but HMRC would have had no idea that was to happen when, in early 2011, they calculated the code for 2011:12.

Assuming the employer used the code they had been supplied (or possibly code BR or 0T if the redundancy payout was made after his P45 was issued) I don't think the employer (or HMRC) can be blamed.

westerngal

Thank you for your quick reply. So the employer couldn't have taken this into account at the time that the payout was calculated? (the fact that income in excess of 100k invalidates the PTA?)

nomunnofun

westerngal wrote: »

Thank you for your quick reply. So the employer couldn't have taken this into account at the time that the payout was calculated? (the fact that income in excess of 100k invalidates the PTA?)

Absolutely not - the employer has no authority whatsoever to change your code number and would not be permitted even to discuss your personal tax affairs with HMRC. When code numbers are issued the employer receives the code to be applied with no background details whatsoever as to how it has been calculated.. Unfortunately, particularly these days, the onus is on the taxpayer to inform HMRC of any change in circumstances and that is what they will say in the event of any appeal. Sorry!

Dazed_and_confused

Realistically no. I suppose if they had realised the potential consequences of the redundancy payout they could have suggested your husband inform HMRC and ask for a new tax code but if your husband didn't think to do this I doubt the employer would. This isn't really the employers job although I guess some payroll staff might go above and beyond the call of duty and try to help avoid problems happening.

Dazed_and_confused

nomunnofun wrote: »

Absolutely not - the employer has no authority whatsoever to change your code number and would not be permitted even to discuss your personal tax affairs with HMRC. When code numbers are issued the employer receives the code to be applied with no background details whatsoever as to how it has been calculated.. Unfortunately, particularly these days, the onus is on the taxpayer to inform HMRC of any change in circumstances and that is what they will say in the event of any appeal. Sorry!

As OPs husband has completed a self assessment return what would there be to appeal against?

nomunnofun

Dazed_and_confused wrote: »

As OPs husband has completed a self assessment return what would there be to appeal against?

Nothing whatsoever - I was hoping that I had suggested that there was no possibility of any appeal but obviously I didn't do a good job of this!!

jimmo

First things first. Was the redundancy money paid with the final salary payment and included on his final payslip or was it paid separately?

Redundancy payments are very often handled separately from wages by employers and are treated as payments after leaving.

If that is what happened your problem has absolutely nothing to do with normal code numbers and up to April 2012 they were taxed using code 0T which frequently didn’t deduct enough tax. Since then HMRC changed the system and code 0T Month 1 is used and now most people suffer too much tax and struggle to get their repayment.

If you can explain how the payment was handled we may be able to help.

Dazed_and_confused

jimmo wrote: »

First things first. Was the redundancy money paid with the final salary payment and included on his final payslip or was it paid separately?

Redundancy payments are very often handled separately from wages by employers and are treated as payments after leaving.

If that is what happened your problem has absolutely nothing to do with normal code numbers and up to April 2012 they were taxed using code 0T which frequently didn’t deduct enough tax. Since then HMRC changed the system and code 0T Month 1 is used and now most people suffer too much tax and struggle to get their repayment.

If you can explain how the payment was handled we may be able to help.

I think your first reference to 0T should say BR and it was April 2011 when the rules changed
http://www.hmrc.gov.uk/paye/paye-regchange.htm

xylophone

First things first. Was the redundancy money paid with the final salary payment and included on his final payslip or was it paid separately?

See here http://www.hmrc.gov.uk/guidance/redundancy-factsheet.pdf
http://www.hmrc.gov.uk/employers/redundancy-er.htm

jimmo

Dazed_and_confused wrote: »

I think your first reference to 0T should say BR and it was April 2011 when the rules changed
http://www.hmrc.gov.uk/paye/paye-regchange.htm

Quite right. Was it really 2 years ago? Time flies when you are old and what hair you have left is grey.

Anyway, with apologies for my mistakes, I still think it is important to establish whether we are talking about a payment after leaving or not.