Owe money to employer - will I get a new tax code and will this affect my tax-free childcare?

Happy_Beluga

Hello there

I'm in a bit of a pickle as I've found out I owe money to my employer. I thought I'd received a payrise like many others in the organiation, but apparently I was too new and shouldn't have been given it - a total mistake on their side.

I owe around £1000 and they've asked me to pay it off monthly until the new financial year in April 2024. Problem is, that's too much for me to pay out per month in the current cost of living climate. The reason they want it wrapped up before the new fincnial year starts is because they think it might affect my tax code and how I claim tax-free childcare (which will eventually turn into the 30 hours as my daughter turns 3 in the April). Does anyone know if this is true? Or am I being threatened?

I'm thinking it's probably worth calling the dreaded tax line!

la531983

An employer deduction is just that, an employer deduction. Its not an overpayment of tax so odd they think it would affect your tax code, they are talking cobblers.

If you had underpaid HMRC then in that circumstance they would/could amend your tax code to pay it back, but thats not relevant here.

Happy_Beluga

Thanks @la531983. I am still confused as to why they might think it would change things. So if I owe the money to the employer it shouldn't affect my tax code? This is just territory I do not understand in the bloody slightest.

General_Grant

Happy_Beluga said:

Hello there

I'm in a bit of a pickle as I've found out I owe money to my employer. I thought I'd received a payrise like many others in the organiation, but apparently I was too new and shouldn't have been given it - a total mistake on their side.

I owe around £1000 and they've asked me to pay it off monthly until the new financial year in April 2024. Problem is, that's too much for me to pay out per month in the current cost of living climate. The reason they want it wrapped up before the new fincnial year starts is because they think it might affect my tax code and how I claim tax-free childcare (which will eventually turn into the 30 hours as my daughter turns 3 in the April). Does anyone know if this is true? Or am I being threatened?

I'm thinking it's probably worth calling the dreaded tax line!

You would have five months for your employer to be refunded the £1K - so £200/month.
However, as it is not your fault, they should be able to agree an extended repayment plan - when they would deduct the amount from your gross pay.  
For how long have you, by their calculation, been overpaid?

Happy_Beluga

Hi @General_Grant
Thanks for responding so quickly.
I've been overpaid since April to October 2023. I can't afford £200 per month right as I have a child in nursery and it's costing an arm and a leg! I think they can offer an extended repayment plan but they did say a change in tax code could affect my tax free childcare or childcare hours come April 2024 when my daughter turns 3. This worries me!

la531983

Again, this isn't going to affect your tax code. You owe your employer, not the government.

They are probably lying to you so it all gets resolved by their financial year end. 

General_Grant

Happy_Beluga said:

Hi @General_Grant
Thanks for responding so quickly.
I've been overpaid since April to October 2023. I can't afford £200 per month right as I have a child in nursery and it's costing an arm and a leg! I think they can offer an extended repayment plan but they did say a change in tax code could affect my tax free childcare or childcare hours come April 2024 when my daughter turns 3. This worries me!

OK - so that over-payment was made over 7 months and you have been managing on that extra (approx £143) gross income for quite some time.  Of course that would not be the extra take-home pay as it would have been subject to tax and NI (and pension contributions?).

As already stated your tax code will not be affected by this change, either this year or next.

I do not understand qualification criteria for childcare but I think the number of hours worked or your earnings (and partner's income) might affect this.  So I suggest you could ask on the benefits board.

I wonder whether your employer could also confirm whether an increase in your pay is likely in April 2024.  If so, you may like to try to negotiate loading the pay-back amount to the next tax year.  For example £100/month this tax year (paying back £500) and £166/month from April to June.

General_Grant

Happy_Beluga said:

Thanks @la531983. I am still confused as to why they might think it would change things. So if I owe the money to the employer it shouldn't affect my tax code? This is just territory I do not understand in the bloody slightest.

Given these people have, by their own admission, made a mistake for 7 months, they probably just don't understand how things work.

chrisbur

As your employer has already made an error and does not appear to be to well informed I think you should check with them how they intend to take back the money.
To be fully correct in the matter they should do an adjusting entry to their payroll return so that a corrected net pay figure is calculated as here.
https://www.gov.uk/payroll-errors/correcting-pay-or-deductions
This would then give a figure to be taken back from your net pay over time.
They might however "keep it simple" and take the money back by reducing your gross pay each payday.  This gives just about the same result though may alter the end of year figures a bit.
Or they may make the deduction from your net pay each payday, which will result in the end of year figures being wrong and more impotently you paying back more than you should.