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  • FIRST POST
    • xtheonex
    • By xtheonex 16th May 18, 10:33 PM
    • 6Posts
    • 0Thanks
    xtheonex
    Employer failed to deduct enough income tax...
    • #1
    • 16th May 18, 10:33 PM
    Employer failed to deduct enough income tax... 16th May 18 at 10:33 PM
    Hi
    I wonder if anyone has any experience with my situation.

    The simple version is - a previous employer didn't deduct enough income tax from me and now HMRC want me to pay it.

    The long version is - I recently started my own company and as such the HMRC obviously requires me to submit a self assessment tax return for the 2017-2018 tax year.
    In the 2017-2018 tax year I started working for Company 1 and left that company in approx June 2017.
    I then started working for Company 2 and left that company in March 2018.
    I then started my own company in April 2018.
    When filling out my tax return the self assessment calculation showed I owe almost 1000 in underpaid tax for that period.
    For both Company 1 and Company 2 I was in the higher tax bracket and I have checked both P45s and from a rough calculation it appears that Company 1 deducted approx 13.5% of my income for tax where as Company 2 deducted approx 23% for tax so it's clear (to me at least) that Company 1 is to blame for this?

    My question I guess is do I have any legal recourse to get Company 1 to pay the tax?
    Now obviously I know the tax should have been paid by me in the first place but one would assume that as I have no control over how their payroll calculated my pay / tax I shouldn't be responsible for HMRC now demanding nearly 1000 in outstanding tax?

    Does anyone have any experience / insight to help answer my question?

    Thanks in advance,
    Dave
Page 2
    • molerat
    • By molerat 17th May 18, 12:58 PM
    • 18,917 Posts
    • 13,089 Thanks
    molerat
    As both myself and chrisbur have pointed out company 1 deducted the correct tax on earnings to date for a final pay date after July 6th. The failure to get a P45 passed to company 2 seems to be the cause of the problem, a P45 is pretty much essential when changing employers. It could be argued it is the taxpayer's responsibility to ensure this is done so that their PAYE can be managed correctly. Without a complete breakdown of each pay slip it is hard to figure out exactly where it went wrong.
    Last edited by molerat; 17-05-2018 at 1:29 PM.
    www.helpforheroes.org.uk/donations.html
    • chrisbur
    • By chrisbur 17th May 18, 1:52 PM
    • 2,936 Posts
    • 1,578 Thanks
    chrisbur
    Update...

    So I phoned HMRC today and spoke to one of their advisers and they looked into it for me and told me where the problem is.

    Basically Company 1 applied the full tax free allowance to my salary for the year even though I only worked there for 3 months. As they didn't provide me with a P45 until a few weeks ago I couldn't pass the P45 on to Company 2 so they weren't aware of this and the applied the tax free allowance to my salary there.

    Is this normal payroll practice from Company 1, to apply a full years tax free allowance on an employment period of only 3 months? It doesn't seem logical to me?
    Originally posted by xtheonex
    This did not happen. I do not know if you have mis-understood what you were told or if you have been badly advised, but company 1 did not apply the full tax free allowance to your salary, if they had you would have paid virtually no tax at all while in that employment.
    Company 2 also did not apply the full years tax allowance, they appear to have applied the emergency tax code which is correct if you had no P45 and confirmed this was your only job at that point. I cannot exactly calculate your tax in job 2 as emergency tax is applied week by week or month by month hence my offer to check this for you if you give the details for each week/month.

    The problem arises in cases like this where you sometimes get an overlap of payments and both company 1 and company 2 give you a tax allowance for the same period. If company 2 had applied your P45 then this would have been corrected in your next payslip; but as the year ended with no adjustment it has now come to light.

    You say you only worked at company 1 for 3 months but your final payment occurred in month 4 was your first payslip paid in month 2? Might be worth checking that these payslips fit in with the end of year figures, again if you give full details I can check these.

    As I said before your best hope is for time to pay but if you want to understand what has happened you can post the figures for me to check.

    PAYE is not always quite as easy to check as some people say it is, and some people who post on here do not fully understand it.
    • chrisbur
    • By chrisbur 17th May 18, 2:06 PM
    • 2,936 Posts
    • 1,578 Thanks
    chrisbur
    Pro-rating would only make sense if company 1 knew, in advance, that you would both be leaving its employment AND taking up employment with someone else for the remainder of the tax year.

    Even if it knew you were leaving (ie end of FTC), it couldn't possibly know what your future plans and job prospects were (ie how long it might take you to find another job).

    Your logic is flawed and you still owe HMRC a grand. Suggest you spend your time and energies working out how you're going to pay than, rather than endlessly arguing here.
    Originally posted by ReadingTim
    This is completely wrong in fact the suggestion by xtheonex
    "I would have thought logically that it would be applied pro-rata?
    Eg. 11500 tax free allowance for 12 months means 3 months at Company 1 is 2875 should be applied for the 3 months and then the remaining 9 months at Company 2 get the 8625.
    That just seems the most logical to me."
    is exactly correct, this is how PAYE operates.

    The two problems in this case as far as I can tell on the limited details available is that the final payment from company 1 was in month 4 and as company 2 was applying the emergency tax code there was an overlap of tax allowances.

    This happens sometimes and is usually sorted by the late P45 being applied, in this case it ran to the end of the tax year.
    • antrobus
    • By antrobus 17th May 18, 2:17 PM
    • 15,760 Posts
    • 22,420 Thanks
    antrobus
    Guidance on what counts as an employer error and how to report the error to HM Revenue and Customs (HMRC).
    https://www.gov.uk/government/publications/paye-employer-errors-in-deduction
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