Tax over payment - Employer mistake.

[Tomo1971]

Wonder if anyone can advise?

I finished self employment at the end of the 2015/16 tax year and started PAYE employment in April (in tax year 2016/17).

My first payslip showed a huge tax over payment (approx 50% of earnings) which I put down to been the first month and the tax code was wrong (although payslip showed 1059L). I did question with HR but they also put it down to first month.

I created an online tax account with HMRC and saw that they had me down as earning my PAYE wage plus estimated earnings from self employment (total of circa £105,000). Using online PAYE calculators, if i was PAYE at £105,000 then the tax I paid would be right, so assumed that this was the mistake. I quickly contacted HMRC via phone and online forms and projected income is now correct with an estimated tax bill for this year been £13,000 - which lines up with online PAYE calculators.

Roll on this month and my 2nd payslip - I have been taxed 50% again. I have overpaid approx £2,500 so far in tax.

Having spoken to HMRC this evening, they can see I am paying too much tax but confirm that my tax code is correct (now at 1100L which correlates with this payslip) and the error must be with the employer - they have the right tax code but the system is processing it wrong.

I also note that the earnings to date are approx £20,000 - which is my pay from Month 1 & 2 added to £12,000 - the £12,000 coming from my P45 from self employment but from tax year ending 2016. It appears that they have taken this £12,000 earnings into account for THIS financial year.

I cant really afford to wait till end of June for next pay, need this sorted ASAP, is there any legal obligation for the employer to a/ fix this quickly and b/ pay me monies due by a BACS payment promptly.

Thanks in advance!

[2 sMoKiN bArReLs]

Sit down with employer & on-line tax calculator & ask them to explain the difference? (assuming that there is )

[2 sMoKiN bArReLs]

P45 from 2016 (assuming 2015/16) should not come into play in current tax year's payslip? (2016/17)

[Tomo1971]

2 sMoKiN bArReLs said:

P45 from 2016 (assuming 2015/16) should not come into play in current tax year's payslip? (2016/17)

I think that I realise that now - having not been PAYE for 8 years I just automatically got a P45 from my self employment termination and passed it on to the PAYE employer - IF they have taken that into account (for the WRONG tax year) - would that be affecting the tax im paying now?

[Eric Mc]

Tomo1971 said:

I think that I realise that now - having not been PAYE for 8 years I just automatically got a P45 from my self employment termination and passed it on to the PAYE employer - IF they have taken that into account (for the WRONG tax year) - would that be affecting the tax im paying now?

How did you receive a P45 if you were self employed?

[Tomo1971]

Eric Mc said:

How did you receive a P45 if you were self employed?

My accountant provided it (upon my request as I thought at the time it was needed)

I realise now, there was no need to produce the P45.

[Eric Mc]

Tomo1971 said:

Eric Mc said:

How did you receive a P45 if you were self employed?

My accountant provided it (upon my request as I thought at the time it was needed)

I realise now, there was no need to produce the P45.

I don't see HOW a P45 could have been generated. P45s are only issued to employees or directors when they cease an employment. Those who are Self Employed have not been in employment so a P45 CAN'T be generated.

[2 sMoKiN bArReLs]

Eric Mc said:

Tomo1971 said:

Eric Mc said:

How did you receive a P45 if you were self employed?

My accountant provided it (upon my request as I thought at the time it was needed)

I realise now, there was no need to produce the P45.

I don't see HOW a P45 could have been generated. P45s are only issued to employees or directors when they cease an employment. Those who are Self Employed have not been in employment so a P45 CAN'T be generated.

unless OP considered himself self employed but had a company sit between?

[Eric Mc]

Who knows. The OP sounds confused.

[2 sMoKiN bArReLs]

Eric Mc said:

Who knows. The OP sounds confused.

I know how he feels

[Tomo1971]

OK, yes - read self employment as ltd co/director/only employee - but for the purposes of the issue, self employment was close enough as that made no difference to the problem.

As it happens the issue has been resolved and against my fears, the overpayments of tax will be back with me at the end of this month.

It was that the earnings from last year had been taken into account for this FY by mistake.

[2 sMoKiN bArReLs]

Tomo1971 said:

OK, yes - read self employment as ltd co/director/only employee - but for the purposes of the issue, self employment was close enough as that made no difference to the problem.

As it happens the issue has been resolved and against my fears, the overpayments of tax will be back with me at the end of this month.

It was that the earnings from last year had been taken into account for this FY by mistake.

Good grief. I would be worried working for a company who's finances are in the hands of muppets!

Glad it's sorted though

[Eric Mc]

Tomo1971 said:

OK, yes - read self employment as ltd co/director/only employee - but for the purposes of the issue, self employment was close enough as that made no difference to the problem.

Self Employment is the completely wrong description of your status. You were a director of a limited company - which means that your income from the company was either salary (taxed under the PAYE system) or dividends (taxed under self assessment).

On the assumption that during the time you were a director of the company, you received a salary, therefore when you ceased receiving that salary a P45 was issued to you as is would be expected (just like for any employee).

Genuinely self employed people NEVER receive P45s because they are not taxed under PAYE.

I'm amazed at the number of directors of limited companies who refer to themselves as "self employed" when they absolutely are not.

[2 sMoKiN bArReLs]

Eric Mc said:

Tomo1971 said:

OK, yes - read self employment as ltd co/director/only employee - but for the purposes of the issue, self employment was close enough as that made no difference to the problem.

I'm amazed at the number of directors of limited companies who refer to themselves as "self employed" when they absolutely are not.

That's because you are an accountant who thinks according to the rules. Self employed can also be a state of mind, i.e. you work for yourself irrespective of the legal shell it lives in.

That's why the doers need bean counters to keep the rest of us on track

[Eric Mc]

I know the reasons, believe me.

But it is genuinely a false assumption and indicates to me that some individuals have a real problem differentiating between themselves as a person and the separate legal person status of their limited company.

It's a pretty important concept to get one's head around and those who fail to do so are often those whop run into problems with their companies. My experience is that those who don't differentiate are often those with the inability to control their personal spending from the company resulting in overdrawn director's loan accounts and consequent tax issues.