Overpaid by work for more than a year - fair enough, they want it back, but what about the tax I paid?

[OmniDroid]

Any help appreciated, as I'm slightly in shock here.

Basically, work have been overpaying me for just over a year (a miscalculated allowance).

I noticed that last month's wages (first since returning from maternity leave) seemed very high, and phoned finance to report it.

They first said no, no, everything is fine. Then they thought about it and phoned me back to say it isn't fine, I'm right that I've been overpayed, and I owe them loadsa money as they've been making this mistake since late 2008.

Fine, OK, it has to be paid back.

But I'm confused - I'll have been taxed on the higher earnings, and now they want me to pay back the amount of the overpayment - am I out of pocket here?

Any one been in this situation? I can't get my head around the tax question...

It is a good point.I would call my local tax office and ask their advice.

I think that if it is in this tax year your company should be able to claim the tax back themselves from IR so you only owe the net amount to the company. If it is in previous tax years (so before 5 April 2009) then they can't claim it back directly so you owe your company the gross but then can claim the tax back from IR yourself - and your company should be able to give you the forms to do this. At least, this is what my company says when the question of paying back enhanced mat pay comes up (they ask for the extra money back if you don't return to work and this is how they explained the tax thing)

Either way you will get the tax back eventually because you were given salary that you hasn't earned and therefore the IR were given tax that you didn't owe. It just gets more complicated if it is prior tax years I think.

But, aside from that, gah - how bloody annoying of your company to get it wrong! I'd be and think you are being remarkably sanguine in your post

Megonthemoon is right - get your work to do you a statement of earnings for any previous tax years. It should show what you should have earned - if you write in to your tax office with this and an explanation that you were overpaid, they'll sort it out for you.

I have no knowledge of such things, but looking on the bright side ( and maybe naively) at least if you get a tax rebate, it can then be used to pay back some of what you owe to your work, and therefore wont be such a PITA to pay back.

Sorry youre in this situation tho, especially as not actually your fault!

I think you can request to have the money deducted from your salary at a reasonable amount per month going forward, rather than paying it back in one lump sum. Depending on how much you earn there may be other implications of paying back overpaid tax - for example did the higher salary make you ineligible for tax credits or some other benefits, that you would have otherwise been eligible for?

You clearly do have to pay the money back, but I think there is scope for negotiating how much you pay back when.

They wouldn't claim the tax from you, they would submit an amended P14/P35 to HMRC showing your correct pay and correct tax/NIC and this would generate a repayment to the employer of the overpaid tax/NI.

Re the overpayment - you might want to look up the Estoppel principle as in some instances your employer cannot claim the money back.

I was overpaid and didn't have to pay back because of this - there is Employment Case Law that you might also find interesting. Just Google 'estoppel principle'.

This happened to me but because it was the employers mistake it was waived. Do you have a union/professional organisation? its worth contacting them for an opinion because the other thing you need to consider is whether this will cause you hardship.

Thank you, OmniDroid, for bringing this up. I posted last week with a similar issue (when returned from ML was overpaid by relatively small amount each month from 2003 till 2008 - and now employer wants over £2000 back despite me being on unpaid SUPL and them admitting it was their mistake). I know what you mean about the sense of shock! I hadn't even thought, though, about the tax I would have paid on these overpayments. Will definitely follow that up!

From tinternet:

"The employer is entitled to recover the overpayment, subject to estoppel - the principle that if two parties proceed on the basis of an assumption, where that assumption proves to be incorrect, neither party can go back on it without there being potential damages. Where an employer overpays an employee by mistake the courts will normally bar recovery if the employer led the employee to believe that she is entitled to treat the money as her own, not reasonably expect her to notice overpayment, that the employee has spent the money in good faith and the overpayment was not caused primarily by the fault of the employee".

And

"There have been cases where a defence has succeeded where an overpayment occurred as a result of a mistake of fact and the individual has not had to make a repayment.

"For example, in County Council of Avon v Howlett 1983 the Court of Appeal held that an overpayment of sick pay of £1,000 was not recoverable because the worker was not to blame for the mistake and he had altered his position in good faith before the Council had claimed repayment.

"Although this decision was before the judgement in Kleinwort, I think it is still possible to make out a defence depending on a particular individual's circumstances. For example, where an employee has spent the overpayment, held a genuine belief it to be theirs and it would be inequitable for the employer to reclaim the money. This is the principle of estoppel. In these circumstances it may be possible for an employee to make out a defence or alternatively lodge a counter claim against the employer in the County Court.

The Leinwort case referred to above concerned a restitutionary claim for monies paid. The House of Lords decided that the mistake of law rule which had been widely used by TUs in dealing with recovery of overpayment cases, should no longer form part of English Law."

Do you belong to a Trade Union? Would be worth talking to them if so. Maybe worth contacting an employment lawyer, especially if you can get some free advice (or CAB?)