Tax - HRMC claiming DH owes 7k

[goldenpepper]

Could really use advice. For a few years DH was self employed and as a result filled in a self assessment tax return. All fine - though in 2022 he became a full time paid employee of a big US company who operate payroll out of the US, but use a remote company to process the payments to European employees in their native currencies.

At some point after a few months of working for them, DH's tax code was changed, and in February of this year he received a bigger than usual salary payment that month. He flagged this to his company, and was told that this was a result of him being on the wrong tax code previously, and was a rebate.

Yesterday DH went to submit his online tax return, fully expecting to state that there was nothing to declare as he's an employee on PAYE. He was shocked to see that HMRC are saying he owes 7k - and this calculation seems to tie in to the 'rebate' somehow. Although it looked like he was paying the correct amount of tax each month - the payments didn't change after February, it appears as though he hasn't paid enough tax across the year - and now owes this amount.

Am I correct in thinking that if this is the US employer's cock up (or indeed HMRC's cock up for changing the code), it's not up to DH to pay it?! We don't have 7k to pay them for a start. Anyone experienced similar and what did you do?

Looks like he straddled two tax years, we had it when DH was drawing his state pension but still working.

Looks like a tax code mix up but who is responsible I can't say. What does his online tax account say? Your DH should phone HMRC, they can be quite helpful. Try at 8am and he might get through quite quickly.

Even if it’a not his fault because he has been put on the wrong tax code, hmrc will expect it paid. However if you call them and explain the situation they will probably help find a payment schedule solution.

@ComfortableAtLastTookLongEnough - yes there's possibly a complication with straddling years, but he filled in a tax return last year, and prior to that gave his employers AND HMRC all the info required in terms of forms. This is not his error....

Unfortunately, my understanding is that whose ever cock up it was, if the money is not his, he will need to pay it back. You can agree a payment plan though, to lessen the impact.

It doesn't matter who's fault it is, if he owes the tax he will need to pay it. Like someone else said, give them a ring and explain that you can't afford to pay it in one go and they will assess you for a repayment plan.

Doesn't mean he won't have to pay. If he has earned the money then he owes the tax.

@Rumplestiltz - but if the employers have been paying him an incorrect amount (ie putting him on a code where not enough tax was deducted), surely it should be up to them to rectify this error?

Unfortunately not, it is up to your husband to check that he is on the correct tax code (how most people will know that is another question entirely).

Of course he has to pay

No if they haven't taken enough tax from him to pass on its still your dh who ultimately needs to pay it not the employer. Whose error is irrelevant.

HMRC can change tax code based on the info they have and it is not unusual for them to collect tax retrospectively (( which is the whole point of self assessment ) likewise they will refund any excess tax paid also , if tax is due it will be due regardless of whose ‘error ‘it was

Surely people are aware they are responsible for paying the correct amount of tax. It is not difficult to do rough check, especially if your take home pay suddenly changes

Just call HMRC. They are very helpful, I promise. And if DH does have to pay it back they will arrange a payment plan.

There is zero change of him not having to repay if he owes this money sorry. Best thing he can do is phone HMRC, explain the situation and ask for their help and advice.

Always check your tax code and payslip, this can be done easily online.

Nope, HMRC don’t care. It’s his responsibility to pay the tax.
His employer must use whatever tax code HMRC issue. It’s your husbands job to check the tax code.

He cant just keep the tax he should have paid, but this page gives more info about different situations.

https://taxaid.org.uk/guides/taxpayers/tax-for-employees/underpayments-of-paye

Do get him to ring HMRC, the phone staff are very good.

Only other thing this it may be worth paying an accountant to look at his payslip p60 etc do this year and last year tax amendment , Hmrc don’t always get it right ! He may still be due to pay tax though , it is just checking to make sure the correct amount
accountants usually charge 100 to 200 per tax year

Thanks for all this advice - the tax aid info is very useful. It does look like there might be a case for the company needing to sort it out -

It is important to identify the exact error or errors which have caused the underpayment of tax. This may identify a possible claim for Extra Statutory Concession A19 (ESC A19) – under which HMRC may be held liable for underpayments of tax due to its own errors, or due to employer error – under which the employer may be asked to make good the underpaid tax. The timescale for ESC A19 must be checked.

@anniegun - that's another confusing thing. It didn't seem like they were suddenly deducting less tax once the code was changed. It seemed like the error was the 'rebate' of tax, which HMRC are now saying he owes!

Just echoing what everyone has said - they will not care whose error it was, the two certainties in life are death and taxes! If it's owed by him it will have to be paid by him, they're very absolute about it, even if it is their error.

It might be worth him trying to see if his employer would cover it if it's the employer's error but I can't see that they would. Even though the tax stuff is often totally impenetrable to the lay person you're still expected to check and know that you're paying correctly.

If only they held the massive companies to the same standard!

Theoretically, the employer will have been sent the tax code by HMRC. They won’t know how the tax code was calculated because that is confidential financial information.

When you log onto your self assessment account you should be able to see notification of tax code updates, with details of how they were calculated.

It’s possible that the employer input the wrong tax code, but the individual would still be liable for the tax due. (Also a big organisation would probably use payroll software that connects automatically to HMRC).

As others have said, you should be able to negotiate a payment plan.

Good luck - it’s a nasty shock when this kind of thing happens, but it’s good that you are looking into it before the 31st.

This implies he's had £7k extra on the year pay rather than tax. It sounds like you've spent it, but it should have gone to HMRC. It's always good to have a grasp of what you should pay each month.
Put the numbers through a tax calculator, but if you owe it, you owe it. Tax is your responsibility ultimately.

I would start by looking at exactly what his gross income for PAYE income is on this relevant tax year and the one before. I would then put it in a tax calculator on line to see how much tax/NI is due for that year. Then I would look at what tax/NI he paid in each of those years. If he also had self empoloyed income in one of the tax years work out tax on that too once employed earnings added on too.

That will enable you to work out if he has underpaid tax by £7k or not.

The fact the employers have not taken enough tax off does not affect the husband's liability unfortunately. Lots of tax payers have all kinds of income, obligations student loans, rental or self employed earnings etc etc and all the employer does is deal with the PAYE and student loans usually and sometimes a tax code picks up on the other earnings but not always.

Are you sure the tax is not due to his SE income in the year? It's not the employers job to pay the tax on that. Years where there are job changes etc cause funny results and must be treated with caution.