PAYE - 18.10.2011

Don’t get caught for your employees’ tax bills

2010/11 assessments

It’s likely a number of your employees have recently received tax calculations for 2010/11. Normally, this wouldn’t have any impact on you as their employer. But for one of our subscribers it resulted in a few employees banging on his door asking what he was going to do about the tax they owed. His initial thought was “it’s not my problem” but after speaking to his accountant it became apparent that it wasn’t that simple. In fact, where there’s been a mistake in working out the PAYE due, employers can be caught for their employees’ tax bills.

Missing codes

The Taxman has a shortlist of PAYE mistakes which crop up frequently (see The next step). It’s worth taking a look at this to identify any that your payroll might be susceptible to. One common problem, as in our subscriber’s case, was failing to operate the correct tax code. This might result from not realising it had changed. But this doesn’t automatically remove your responsibility to meet the resulting tax bill.

Tip. Suggest to your employees that they tell you about notices of amended codes they receive. Watch for changes around February or March as the new code might relate to the following tax year, which starts in April. If you haven’t received a corresponding notice of the change, contact the Taxman. Usually he’ll confirm over the phone that you can operate the new code. Make a note of the call, including the name of the person you spoke to.

Employers’ liability

Where the amount of tax you deduct from your workers’ pay isn’t as much as the Taxman expects, the PAYE regulations initially make you liable to pay the shortfall in full. However, where you can show that “reasonable care” was taken in working out your employees’ PAYE, the Taxman can rule that the payment can be collected from them.

Reasonable care

It seems the trouble in our subscriber’s case was caused by a batch of tax codes which went missing. But because our subscriber had an exemplary PAYE record and hadn’t changed his procedures during the year the problems arose, this was sufficient for the Taxman to accept that he was likely to have taken reasonable care. Had our subscriber followed our tip it would have saved him hassle with his employees and the Taxman.

Be proactive

If you spot an error in your PAYE calculations during the tax year, you can correct it without asking permission from the Taxman. But where this will result in a large tax deduction in one pay period, to avoid trouble with your employees, it’s worth contacting the Taxman. Explain what went wrong and ask if you can operate PAYE on a“week 1/month 1” basis (see The next step). This has two advantages. Firstly, the big tax hit for your employee will be deferred. Secondly, contacting the Taxman is probably enough to demonstrate to him that you’ve taken reasonable care over the PAYE calculations, which means he can’t come after you for the tax.

For the Taxman’s list of common PAYE errors (TX 12.02.07A) and for information on week 1/month 1 PAYE (TX 12.02.07B), visit http://tax.indicator.co.uk.