Who is Responsible For Underpaid Tax?

Underpaid Tax

HMRC reviews the amount filed for tax every year, if you are employed or have received a pension.

Form P800 or Simple Assessment letter is received which specifies through PAYE reconciliation whether tax collected from pensions and salary under PAYE are correct.

Although mistakes can be made.

Mistakes can arise by the PAYE system if you have more than one job or many pensions, or through error by your employer.

Who is held responsible for paying back underpaid tax? This article will clarify the situation in detail.

What can be deemed as a tax error

These are known as the most common mistakes made by employers or pension payers in deduction of PAYE, according to the government:

Tax Error

  • Use of incorrect tax code at the beginning of employment
  • Use of tax code without the authority of the HMRC
  • Use of a new tax code before it has been issued.
  • Use of out of date tax codes when operating tax codes have been sent electronically.
  • Use of out of date PAYE Taxable pay tables
  • Errors in implementing a software for use in the new tax year
  • Guidance issued in Employers Help Books or Bulletins are not followed
  • Error in inserting correct pay figures

When employer is held responsible

HMRC may demand underpaid tax from employees rather than the employer or pension provider which may cause little confusion.

In case of use of incorrect PAYE code by employer or pension provider which has resulted in less tax collection, they are responsible for it, not you.

employer is held responsible

Your accountant may provide help by checking you form P800. PAYE codes issued to you for the tax year and payslips from your employer or pension provider will be required to confirm PAYE codes used for taxation purposes.

You can request to check the records of your employer or HMRC can check them if you suspect that your employer is responsible for under-payment of tax.

Under-paid tax amount will be paid by the employer if the enquiry concludes that it was indeed their fault.

Employer or pension provider is given a chance to provide an explanation, by the HMRC. If they offer a reasonable explanation and the error was made in a good faith, then the employee shall pay the underpaid tax sum, by the instructions of the HMRC.

When HMRC is held responsible

The HMRC will have to pay the sum if years of tax errors were left without informing you or they have ignored information provided by you or your employer on more than one occasion.

Tax can be written off under Extra Statutory Concession A19, if you believe the HMRC has made the mistake.

Although it is advised that you seek a professional to help argue your case.

How much time you have to repay the tax

HMRC allows 12 months to repay the tax, in most cases. It could allow up to 36 months in special cases.

You can be allowed to pay in instalments, by HMRC, if you cannot afford to pay back the whole sum at once.

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