Employer trying to deduct full wages packet after the forgot to deduct tax earlier this year

cpedly

Hi there,
I work for a South African company doing cable installations on wind turbines in the north sea (I am a British taxpayer). When I start for them this summer I signed a contract as a contractor (sole trader) and this is the only contract that I have ever had with them. After the first trip they informed us that they would have to pay us PAYE due to IR35 and that they would take any due tax from those the final of the 2 invoices that I sent and then it would be PAYE as normal. I still have not received a new contract from them and so am working under the same self-employed one as before which states that I am responsible for paying the tax. 

Last week I received an email from the person in charge of payroll in South Africa saying that he made a mistake in my tax calculations under PAYE and would deduct over £2200 from me which is my entire Christmas wage packet and some of my January one. From what I can gather this is not legal and I am currently stuck on a boat effectively working for free. Can anyone advise me what I can do to prevent this money from being taken? I am still on the same self employed contract and the mistake was on the part of the office earlier this year. Surely it is their responsibility as they made the error instead of taking entire wage packages from me without permission?

Any help would be much appreciated.

Jillanddy

This is potentially more complicated than you think. It seems that you are assuming that being on PAYE means you are an employee. But contractors can also be taxed as PAYE, and often are - and it seems that this is what is happening with you. You are still self-employed, that hasn't changed as far as I can see. IR35 exists to ensure that people who are not employees pay their taxes (that's a big simplification, but essentially the point of IR35). 

As such, you have no protection at all to prevent the company you work for recouping money against your invoices - the protection you think you have is for employees, and prevents an employer from deducting more than a certain amount of money owed to them.

Unfortunately this is a dispute between you and the company, and the only avenue open to you is to negotiate repayment and hope they agree with you. Unless, of course, the contract that you have with the company says otherwise? Because this isn't really an employment issue, although it no doubt feels that it is. It is a contract matter between two entities, one of which owes the other money (albeit through no fault of yours). 

Undervalued

Assuming this comes under UK law then they can deduct anything you owe providing you are still receive at least the national minimum wage for that pay packet. Your contract may give them authority to deduct more than that (assuming is is actually owed).

I know you won't want to hear this bit but is is also an employee's duty to check that they are being paid the correct amount and to draw any possible errors to the employer's attention. It is not just one sided and you must (or at least should) have realised you were getting significantly more money than you would have expected even if you did not know the exact details?

First you need to check that their calculations are correct. If they are then there is little more you can do other than ask nicely if the money can be reclaimed over a period of time given that they made an error (although you should have spotted it).

Had you received £2200 less over the last few months how would you have managed given that you don't seem to have the excess in the bank? 

Jillanddy

Undervalued said:

Assuming this comes under UK law then they can deduct anything you owe providing you are still receive at least the national minimum wage for that pay packet. Your contract may give them authority to deduct more than that (assuming is is actually owed).

Assuming the OP is an employee - which the evidence suggests that they are not.

Sandtree

IR35 doesnt make you an employee, just requires that you are paid as one, however IR35 only applies to UK domiciled companies so unless the company is based in the UK it wont apply to them, if it isnt then if there is a recruitment agency in the supply chain it applies to them instead, assuming they are UK based etc until it gets to you.

If you have thought you were self employed then you will have been accruing for your taxes which will be roughly similar to those of an employee as you dont have as much tax efficiency as a sole trader than a Ltd. As such you can use that accrued money in lieu of your Dec pay packet. If you havent been putting the money aside for your taxes then this problem was going to hit you in the future anyway.

cpedly

Undervalued said:

Assuming this comes under UK law then they can deduct anything you owe providing you are still receive at least the national minimum wage for that pay packet. Your contract may give them authority to deduct more than that (assuming is is actually owed).

I know you won't want to hear this bit but is is also an employee's duty to check that they are being paid the correct amount and to draw any possible errors to the employer's attention. It is not just one sided and you must (or at least should) have realised you were getting significantly more money than you would have expected even if you did not know the exact details?

First you need to check that their calculations are correct. If they are then there is little more you can do other than ask nicely if the money can be reclaimed over a period of time given that they made an error (although you should have spotted it).

Had you received £2200 less over the last few months how would you have managed given that you don't seem to have the excess in the bank? 

It is not that I don't have the money in the bank, it is that there was a meeting where they said they would do my calculations and tell me what would be deducted from my last pay from my wages from work in August, this amount was a few hundred £'s which I gave them permission to take and they said that they came to these calculations under a UK PAYE specialist. I received my pay from August with deductions made in September no problem, and then on Friday I received another email saying that there has been a mistake on behalf of the office and they miscalculated by over £2200 and it would be reclaimed from the next wages. In terms of me not noticing, I was assured by the accounts department that moving into PAYE the amount that I would owe was a few hundred £'s so had no reason to doubt them. 

Undervalued

cpedly said:

Undervalued said:

Assuming this comes under UK law then they can deduct anything you owe providing you are still receive at least the national minimum wage for that pay packet. Your contract may give them authority to deduct more than that (assuming is is actually owed).

I know you won't want to hear this bit but is is also an employee's duty to check that they are being paid the correct amount and to draw any possible errors to the employer's attention. It is not just one sided and you must (or at least should) have realised you were getting significantly more money than you would have expected even if you did not know the exact details?

First you need to check that their calculations are correct. If they are then there is little more you can do other than ask nicely if the money can be reclaimed over a period of time given that they made an error (although you should have spotted it).

Had you received £2200 less over the last few months how would you have managed given that you don't seem to have the excess in the bank? 

It is not that I don't have the money in the bank, it is that there was a meeting where they said they would do my calculations and tell me what would be deducted from my last pay from my wages from work in August, this amount was a few hundred £'s which I gave them permission to take and they said that they came to these calculations under a UK PAYE specialist. I received my pay from August with deductions made in September no problem, and then on Friday I received another email saying that there has been a mistake on behalf of the office and they miscalculated by over £2200 and it would be reclaimed from the next wages. In terms of me not noticing, I was assured by the accounts department that moving into PAYE the amount that I would owe was a few hundred £'s so had no reason to doubt them. 

Ah, so 

deduct over £2200 from me which is my entire Christmas wage packet

is all a bit emotive then as the little ones won't be going hungry! 

Seriously though, the problem is, even assuming it is 100% their fault and they deduct more than would be allowed (assuming you are actually an employee) if you took them to court all you would get (in addition obviously to the money owed) would be any actual losses you have incurred as a result.

However, as you have the money in the bank and wouldn't be borrowing it, all that would amount to is whatever interest you have lost for X months. Basically the square root of not a lot! Plus, as you have had the benefit of the extra money for a few months I suspect you wouldn't even get that.

Yes it is annoying but it does also highlight the need to keep a proper check on your "wages" (contract payments) and never assume the "employer" (client) has got it right.

unholyangel

This is more complex than it first seems. 

If there is a contract of employment then there are rules about how much they can deduct from your wages, unless it's the final wage. 
If it's self employment it would be down to the terms you agreed with them. 

HOWEVER......both of the above relate to overpayment of wages/earnings only. If it is an underpayment of tax and they are operating PAYE then a) they should be operating the code HMRC provided (which should recoup any underpaid tax over the remainder of the tax year and) b) PAYE prevents more than 50% of your wage being deducted in tax (although bear in mind, this is only tax and there may be other deductions like NIC or pension contributions). Their tax software should automatically limit any income tax deduction to 50% of your gross taxable. 

Do you have an accountant? May be worthwhile asking them to take a look at the payslips & paperwork to make sure they're operating PAYE as they should be.