PAYE - earning over £100k

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Given the average earnings on PH I thought this would be a good place to ask the question;

If you are PAYE does your payroll system automatically adjust for the reduction in personal allowance once you start earning over £100k?

Our payroll system is outsourced. It looks as if employees earning over £100k aren't having the right level of tax deducted in the year that their earnings go over the £100k threshold. Instead it's being adjusted the following year via the tax code. My questions are

1. Should the tax be deducted in the correct year?
2. Is it acceptable for the tax to be deducted the following year via a reduced Tax Code?


Thanks as ever

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Eric Mc said:

HMRC should adjust the PAYE coding and notify the employer.

Thanks Eric.

Is the employer then obliged to adjust the In-Year tax deductions going forward, or are they permitted to constantly use the tax code notification as a way of recovering the underpaid tax the following year?

Our payroll providers are suggesting their computer system is not set up to automatically reduce the personal allowance, which seems slightly bonkers.

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@CollectingBrass

Thanks. From what you're saying it appears as if there is no obligation on the Payroll system to automatically start taking extra tax off people when they go into the £100k - £123k band and that the reduction of Personal Allowance should be via tax code only.

Am i reading that correctly?

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Hypothetically - the issue is that somebody got a big bonus in March.

When their accountant has done their self assessment form for 17-18 he has told them they owe an extra couple of grand, because of the bonus not being correctly taxed. By “correctly taxed” it WAS taxed at 40% but, due to the taper reduction, it should have been taxed at 60% (effectively). He’s suggesting the Employer should pay. The Employer is suggesting that the employee should pay.

That’s my question - is the onus on the Employer or should the Employee accept that this is normal/routine etc etc.

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anonymous said:

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Re: the bit in bold - HMRC guidance is that if the underpayment is due to an Employer error then its the Employer (rather than the Employee) who has to pay.

The Employee is arguing it’s an Employer error because the payroll system should have deducted it automatically.

The Employer is arguing that its not an error because the Payroll system “doesn’t work like that”.

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Thanks folks

Jefferson Steelflex said:

So just to come back to this, it's not an employer error as long as they've correctly applied/calculated the tax code that HMRC would have sent them (it's all done electronically now). The employer is not to know if the employee has other arrangements that reduce their taxable earnings, e.g. by making manual pension contributions, so can only go by the information they are given.

The only person that should really know if the tax code is correct, and is therefore responsible, is the employee.

Tax code has definitely been applied correctly. However what I cant understand is that when somebody moves from 20% band to 40% band the payroll system automatically deducts the extra tax. And the same when a person moves from 40% band to 45% band. So why can't the payroll system automatically take extra tax when somebody earns between £100 and £123k?

Anyway he's shut up and gone back to his Accountant so hopefuly that's that.