Redundancy - tax overpayment
Discussion
Scenario is that I was made redundant in May 2013 and given a payoff. I noted at the time that amount I was paid was pretty much nearly the gross amount. It looked like the employer had not correctly handled the tax payment.
No problem, I have to self assess and know that come Jan 2015 I will owe the taxman a lump sum.
My accountant asked me to contact the employer to get some insight on what too place. We had a P45 reflecting all the payments but the accountant just wanted a confirmation that the employer had made an error. I made it clear in my email to the employer that I wanted no further action taken by them, that I would not be in any position to make lump sum payments immediately and thus preferred to sort my tax owing in Jan 2015. Since being made redundant I have not drawn a wage and my savings are dwindling.
The payroll department is off shore and did not seem to correctly interpret the instruction. They have just paid HMRC quite a considerable sum, despite my insitence they take no action, probably double the amount of income tax actually owing.
From the employer I now have "This amount now needs to be recovered from him by the XXXX Payroll department as this was overpaid to him by us and therefore he will need to provide approval to have this amount deducted from his XXXX bank account or hand in a cheque with this amount. The amount can be split over a period of monthsto what he is comfortable in repaying".
XXXX is my bank and previous emplyer.
What can I do here? I'm happy to pay them back once I have the cash - my original plan was to submit a tax return in 2015 to square HMRC off. I am not in a position to pay them and cannot submit a tax return to calcumate my final state of payment until April at the earlest. I would prefer them to claw the money back from HRMC and me settle up later. Can that happen?
No problem, I have to self assess and know that come Jan 2015 I will owe the taxman a lump sum.
My accountant asked me to contact the employer to get some insight on what too place. We had a P45 reflecting all the payments but the accountant just wanted a confirmation that the employer had made an error. I made it clear in my email to the employer that I wanted no further action taken by them, that I would not be in any position to make lump sum payments immediately and thus preferred to sort my tax owing in Jan 2015. Since being made redundant I have not drawn a wage and my savings are dwindling.
The payroll department is off shore and did not seem to correctly interpret the instruction. They have just paid HMRC quite a considerable sum, despite my insitence they take no action, probably double the amount of income tax actually owing.
From the employer I now have "This amount now needs to be recovered from him by the XXXX Payroll department as this was overpaid to him by us and therefore he will need to provide approval to have this amount deducted from his XXXX bank account or hand in a cheque with this amount. The amount can be split over a period of monthsto what he is comfortable in repaying".
XXXX is my bank and previous emplyer.
What can I do here? I'm happy to pay them back once I have the cash - my original plan was to submit a tax return in 2015 to square HMRC off. I am not in a position to pay them and cannot submit a tax return to calcumate my final state of payment until April at the earlest. I would prefer them to claw the money back from HRMC and me settle up later. Can that happen?
You have two main issues here - the operation of PAYE/NIC and the reporting via your self assessment tax return. The latter is for you to do correctly and settle any tax that MAY be due. You have already alluded to this but as has already been posted, you need to consider what you were actually paid and whether the £30,000 exemption applies in your circumstances.
The (correct) operation of PAYE is employer compliance. Although it is an employee tax, the onus is on the employer to do it correctly. If your ex employer believes they have done this incorrectly they cannot just ask you to reimburse them for this. HMRC would also take this view - they will NEVER approach an employee for a PAYE failure, they will go to the employer. I have even seen employees settle an underpayment of PAYE via the self assessment process (it is not strictly PAYE of course as a self assessment payment cannot rectify a PAYE failure). Subsequently HMRC has determined the PAYE failure and collected this from the employer reimbursing the self assessment payment to the employee. The employer cannot then recover this from the employee without their agreement.
One caveat however - if you were made redundant there may have been a compromise agreement. If so there should be a tax indemnity paragraph in this to set out the tax being deducted from the payments being made and the Company's view on the tax treatment. There should also be commentary on who will be liable for any additional tax and there may even have been guidance on any future PAYE payments due. Check the wording of your agreement if there was one.
The (correct) operation of PAYE is employer compliance. Although it is an employee tax, the onus is on the employer to do it correctly. If your ex employer believes they have done this incorrectly they cannot just ask you to reimburse them for this. HMRC would also take this view - they will NEVER approach an employee for a PAYE failure, they will go to the employer. I have even seen employees settle an underpayment of PAYE via the self assessment process (it is not strictly PAYE of course as a self assessment payment cannot rectify a PAYE failure). Subsequently HMRC has determined the PAYE failure and collected this from the employer reimbursing the self assessment payment to the employee. The employer cannot then recover this from the employee without their agreement.
One caveat however - if you were made redundant there may have been a compromise agreement. If so there should be a tax indemnity paragraph in this to set out the tax being deducted from the payments being made and the Company's view on the tax treatment. There should also be commentary on who will be liable for any additional tax and there may even have been guidance on any future PAYE payments due. Check the wording of your agreement if there was one.
Not being funny, but you owe the taxman money & suggest you cannot pay it back. I'd be on to the tax office now to discuss the situation & payment plan, as well as the employer.
Better to be straight with them & get good information. They will want their money and should offer you a reasonable plan to pay it back.
If the onus is on the employer, get that from them rather than internet speculation ..
Better to be straight with them & get good information. They will want their money and should offer you a reasonable plan to pay it back.
If the onus is on the employer, get that from them rather than internet speculation ..
I'll paraphrase my severence agreement to anonymise for the employer.
SEVERENCE PAYMENTS
Section 1.3
You will receive, less such applicable tax and emplyees NI deductions required by law the sum of £xxxxx
TAXATION
2.1 The first £30k is tax free in line with HRMC. The excess of payments in 1.3 will be subject to deductions of income tax and NI as required by law.
2.2 You will be responsible to HRMC for payment of tax and employee NI tht arise in respect of Severence Payments under the Terms in excess of that deducted at source (if any)...and agree to indemnify the Company on a continuing basis against further contributions for which the Company may be liable to account.
2.3 If the Company receives a demand for tax, NI or other payment from HRMC pursuant to 2.2 it will notify you after the demand is recieved, give reasonable access to supporting docuemtnation to dispute a demand and give you a reasonable oppirtunity to challenge the demand with HMRC before making a payment on your behalf save where this would result in the Company being penalised for not meeting such demands or complying with legal obligations with regard to HMRC.
My position:
The company have failed to execute 2.1 properly and not deducted the correct tax/NI at severence time.
They have not followed 2.3 and offered me chances to challenge or disputre and instead chosen (despite being asked not to beforehand) pay their view on the outstanding tax owed. Since May 2014 I have not drawn a salary so there may have been an assumption I continue to earn at the pre-redundancy rate.
This immediate demand for the return of the full amount is not in line with my budget/cash flow forecasting and repaying immediately will cause me some problems (non are insurmountable).
Any useful advice appreciated.
SEVERENCE PAYMENTS
Section 1.3
You will receive, less such applicable tax and emplyees NI deductions required by law the sum of £xxxxx
TAXATION
2.1 The first £30k is tax free in line with HRMC. The excess of payments in 1.3 will be subject to deductions of income tax and NI as required by law.
2.2 You will be responsible to HRMC for payment of tax and employee NI tht arise in respect of Severence Payments under the Terms in excess of that deducted at source (if any)...and agree to indemnify the Company on a continuing basis against further contributions for which the Company may be liable to account.
2.3 If the Company receives a demand for tax, NI or other payment from HRMC pursuant to 2.2 it will notify you after the demand is recieved, give reasonable access to supporting docuemtnation to dispute a demand and give you a reasonable oppirtunity to challenge the demand with HMRC before making a payment on your behalf save where this would result in the Company being penalised for not meeting such demands or complying with legal obligations with regard to HMRC.
My position:
The company have failed to execute 2.1 properly and not deducted the correct tax/NI at severence time.
They have not followed 2.3 and offered me chances to challenge or disputre and instead chosen (despite being asked not to beforehand) pay their view on the outstanding tax owed. Since May 2014 I have not drawn a salary so there may have been an assumption I continue to earn at the pre-redundancy rate.
This immediate demand for the return of the full amount is not in line with my budget/cash flow forecasting and repaying immediately will cause me some problems (non are insurmountable).
Any useful advice appreciated.
Jimboka said:
Not being funny, but you owe the taxman money & suggest you cannot pay it back. I'd be on to the tax office now to discuss the situation & payment plan, as well as the employer.
Better to be straight with them & get good information. They will want their money and should offer you a reasonable plan to pay it back.
If the onus is on the employer, get that from them rather than internet speculation ..
You tell the OP not to rely on internet speculation and then offer your own advice on the course of action he should take? The OP isn't on about not being able to settle the tax or not wanting to, just ensuring it is paid at the correct time.Better to be straight with them & get good information. They will want their money and should offer you a reasonable plan to pay it back.
If the onus is on the employer, get that from them rather than internet speculation ..
OP - we don't have all the facts and circumstances here. One thing that stands out in the paragraphs lifted from your compromise agreement is that the Company may not have obtained the correct advice on the tax and NI treatment. IF your payment qualified as a genuine redundancy payment and the £30,000 exemption applies, this is just a tax exemption. Genuine redundancy payments are not liable to NIC at all, regardless of the quantum.
Also just to add, I have over 15 years experience working in this field, two thirds of that time at a Big Four firm. However, I can only offer guidance and not advice and that is all I have provided. Please go back and talk to your ex employer about what exactly they are now deducting and whether they obtained advice on the tax and NIC treatment at the time. Alternatively I would be happy to help them/you out on a formal basis if you want to engage with the firm I work for.
Edited by LC23 on Tuesday 14th January 11:40
Eric Mc said:
Did they inadvertently deduct tax and NI on the £30,000 amount?
Did they take proper steps to ensure that the terms and conditions under which the £30,000 as paid were in line with HMRC rules or were they sloppy and failed to apply the tax rules properly?
No, £30k was tax free.Did they take proper steps to ensure that the terms and conditions under which the £30,000 as paid were in line with HMRC rules or were they sloppy and failed to apply the tax rules properly?
Yes - they have done that, it was a proper redundancy as part of a global plan.
LC23 said:
Jimboka said:
Not being funny, but you owe the taxman money & suggest you cannot pay it back. I'd be on to the tax office now to discuss the situation & payment plan, as well as the employer.
Better to be straight with them & get good information. They will want their money and should offer you a reasonable plan to pay it back.
If the onus is on the employer, get that from them rather than internet speculation ..
You tell the OP not to rely on internet speculation and then offer your own advice on the course of action he should take? The OP isn't on about not being able to settle the tax or not wanting to, just ensuring it is paid at the correct time.Better to be straight with them & get good information. They will want their money and should offer you a reasonable plan to pay it back.
If the onus is on the employer, get that from them rather than internet speculation ..
OP - we don't have all the facts and circumstances here. One thing that stands out in the paragraphs lifted from your compromise agreement is that the Company may not have obtained the correct advice on the tax and NI treatment. IF your payment qualified as a genuine redundancy payment and the £30,000 exemption applies, this is just a tax exemption. Genuine redundancy payments are not liable to NIC at all, regardless of the quantum.
Also just to add, I have over 15 years experience working in this field, two thirds of that time at a Big Four firm. However, I can only offer guidance and not advice and that is all I have provided. Please go back and talk to your ex employer about what exactly they are now deducting and whether they obtained advice on the tax and NIC treatment at the time. Alternatively I would be happy to help them/you out on a formal basis if you want to engage with the firm I work for.
Edited by LC23 on Tuesday 14th January 11:40
Rather than just supply an answer, they took what was in their opinion remedial action and decided to lump a big payment at the tax man end of December and now want me to pay them back. Effectively a year early.
Some years ago I took a redundancy payment that was north of £30k. It too was tax-free up to the £30k limit but the company applied a notional tax rate of 10% to the remainder. The problem was all I remembered was that (some) tax had been paid.
Owing to the timing of the redundancy (left the office in the December, gardening leave for 3 months and received the redundancy payment in April) it was more than 2 years after ending the job that I filled out the relevant tax return. I thought it had all been covered in my P60 from the previous tax year but the redundancy payment was never included in any P60/P45.
I didn't realise this until I had a love letter from the tax man
Anyway, cut a long story short it was all sorted, underpaid tax paid up with a 'voluntary' donation to the civil service pension fund!
Owing to the timing of the redundancy (left the office in the December, gardening leave for 3 months and received the redundancy payment in April) it was more than 2 years after ending the job that I filled out the relevant tax return. I thought it had all been covered in my P60 from the previous tax year but the redundancy payment was never included in any P60/P45.
I didn't realise this until I had a love letter from the tax man
Anyway, cut a long story short it was all sorted, underpaid tax paid up with a 'voluntary' donation to the civil service pension fund!
It would appear that they operated PAYE incorrectly at the time of payment therefore and they are now looking to correct this as they are still within the same tax year. From the employer's point of view this is the prudent thing to do. Whether they can now enforce the collection of this PAYE on you may well come down to the wording of the compromise agreement and the legal interpretation of that.
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