Letter from HMRC claiming underpaid PAYE and NIC

[booms]

Hi all,

I took a salary payment of £8840 as a single payment for one month earlier in my tax year.

My accountant calculated that this should have a PAYE payment of £1440.53 which i paid knowing that I didn't plan to earn over the PA this year and that I'd get it back one way or another.

I've now received a letter from the HMRC saying that I owe £5k of unpaid PAYE and NI for my employee (i.e. me) showing that they expected payment of roughly the same size for the following two months, and for NIC.

It looks like they've assumed I would keep being paid £8840 per month. Any idea what's happened here? Is this something to do with what my accountants have submitted to the HMRC, or have HMRC made an error? I seem to remember hearing that there was a way for accountants to show that a salary payment was unique for a given month and shouldn't be repeated on PAYE submissions?

Confused as I've taken a single salary payment up to the NI Threshold in prior years before and not had this happen. Any insight what's gone wrong?

[Lance]

you already know..
You said "looks like they've assumed I would keep being paid £8840 per month". That's what they've done.
Ring them and set them straight.

[PTP]

Did you see this thread HMRC chasing my closed Ltd for Class 1 NI that should've been sent from umbrella - Contractor UK Bulletin Board
(Note the heading should've been Tax & NIC)

Does your letter mention the term "Specified Charges" ?

If it does then that's a good sign. Like Maslins pointed out in that thread, that's HMRC's speak for "guesses".

So just get your accountant to do whatever it takes to make them stop making the assumption.

[booms]

Thanks both. PTP - that's fascinating. The number on the letter is 03002003819 which some people seem to think is a scam number! But then others think is just the HMRC is such an administrative mess that it appears to be a scam but is not...

No reference to specified charges unfortunately. Will see what my accountant comes up with.

[Maslins]

You'll need to liaise with your accountant re this, they'll know what they've done, we'd just be speculating.

Possibly they submitted the £8,840 as April's payroll, then submitted nothing for the following months. HMRC will then be guessing in the absence of submissions (though if your letter makes no mention of specified charges this probably isn't the case).

Have they possibly been actually submitting £8,840/month each and every month...either big confusion between you/them over what you wanted, or big muck up by them?

IMHO attempting to do an annual salary is daft, payroll systems aren't really set up to deal nicely with it. Divide it by 12 and do it as a monthly submission. Yes it's 12 submissions instead of 1, but the submissions are a doddle and it'll minimise risk of problems like you're seeing.

[northernladuk]

Why a yearly payment? Was this in arrears for the previous year? I thought paying yourself upfront before you worked it was a big no no? Did your accountant advise you do this or did you just go ahead and do it without asking?

[Fred Bloggs]

I see little issue with an annual salary payment. But do it in March. Then there's no scope to mess up tax for the rest of the year because 5th April the year ends.

I know it's not quite the same, but making an annual drawdown of the year's accumulated dividends is my strategy for SIPP drawdown. Exactly same reason applies. No time left in the year for my tax bill to go wrong if I draw down in March 2022. Rinse and repeat 2023 onwards.

Since the SIPP income is entirely fun money, I'll know exactly how much fun I can afford in the year. Makes perfect sense.

[SimonMac]

When it comes to setting up your PAYE scheme you have three options:

• Director
• Director (alternative arrangements)
• Employee

National Insurance Contributions will be calculated on an annual basis for directors and on a monthly basis for employees. Directors using the alternate arrangements will also have monthly basis contributions until the final month of the year, which is evaluated on an annual basis.

So who ever set you up ticked the wrong option of the three above

[eek]

When it comes to setting up your PAYE scheme you have three options:

• Director
• Director (alternative arrangements)
• Employee

National Insurance Contributions will be calculated on an annual basis for directors and on a monthly basis for employees. Directors using the alternate arrangements will also have monthly basis contributions until the final month of the year, which is evaluated on an annual basis.

So who ever set you up ticked the wrong option of the three above

Monthly or weekly for employees...

[northernladuk]

I see little issue with an annual salary payment. But do it in March. Then there's no scope to mess up tax for the rest of the year because 5th April the year ends.

But it depends when it is paid and what for? I thought general consensus was that you can't pay yourself 9k for the year when you've not worked it. Obviously there is also the fact that things might change in that year and you are going to have mess about with your figures potentially attracting unwanted attention but as I said, I thought we were told paying a salary for the year upfront was not to be done?