Underpayment of tax by PAYE

[NoviceContractor]

Hi,
I was doing calculation of my self assessment for 2020-2021 (I know I am delayed) and got to know that my PAYE service provider has deducted less tax then what they should have. They deducted less tax because of the tax code they received from HMRC. I am now short of nearly 20K on tax and need to pay it. Do you know if there is anyway around paying this self assessment tax? I was reading an online article which was saying that if HMRC has made a mistake then they should be liable for picking up the bill. If PAYE operator made a mistake then they have to pick up the bill.
Has anyone else been in the same situation and could kindly share their feedback?

I know I need to pay fare tax but I do not have this much cash sitting with me at the moment. I know I can get into a payment arrangement with HMRC but trying to find out if there is anyway to save it altogether? Looks like it was HMRC fault and they did not issue correct tax code. I was on 20% tax code where as I should have been on 45% tax code. There was no change in the rate in the meantime.

Thanks.

[cojak]

Contact HMRC asap. They might give you an extended time to pay.

In the meantime, read this: Using an Umbrella? CHECK YOUR TAX CODE!!

[northernladuk]

There is no way of getting out of this by putting the blame on someone else. They aren't going to pay your tax for you I am afraid. You earned it so you need to pay tax on it. Other parties maybe be liable for penalties incurred, like your accountant if they've filed late or something like that but tax is always your issue as you've got the money.

You posted about MVL in Feb 21. This hasn't confused the situation has it? This is just an issue with tax code and nothing else?
Saying that I am sure there are questions to be asked about how you got here but I guess that doesn't matter really now does it? You are now asking if anyone else can be held liable? That would be a no I am afraid. First thing to do now is see what payment plan HMRC are willing to accept.

EDIT : It appears it is possible to complain to HMRC if they have made a mistake and ask for some of it writing off but it appears there are two tests. The first one is going to be extremely difficult to meet for such a large underpayment and you'd have to work out the timings for the second but it does state 'AND' so would have to meet both which, by design I am sure, is going to be very difficult to do.

If you think tax was underpaid because of a mistake or delay by HMRC, you can ask them to consider writing off some or all of the tax. It must have been reasonable for you to have thought that your tax code was correct, and HMRC must have delayed using information for at least 12 months from the end of the tax year in which it was received.

[NoviceContractor]

I have been reading through online and found below article:
https://www.litrg.org.uk/tax-guides/...pay-enough-tax

[cojak]

And?

That website isn't an official source. As the Americans say "If ifs and buts were candy and nuts, we’d all have a Merry Christmas" - you might get somewhere if HMRC or your provider is in error but it's very unlikely.

And you seem to have skipped this point

It is important to make sure that HMRC have up to date personal details for you at all times.

Certainly contact HMRC and make the points mentioned on the site, but don't expect success - you are ultimately responsible for paying the correct amount of tax.

[eek]

I have been reading through online and found below article:
https://www.litrg.org.uk/tax-guides/...pay-enough-tax

You don't have a low income if you've underpaid £20,000 worth of tax.

What happens if I do not pay enough tax? | Low Incomes Tax Reform Group (litrg.org.uk) has a list of options but basically HMRC are going to ask you to pay up and will be expecting you to do so quickly.

[eek]

And?

That website isn't an official source - it's an activist site. As the Americans say "If ifs and buts were candy and nuts, we’d all have a Merry Christmas" - you might get somewhere if HMRC or your provider is in error but it's very unlikely.

And you seem to have skipped this point


Certainly contact HMRC and make the points mentioned on the site, but don't expect success - you are ultimately responsible for paying the correct amount of tax.

LITRG is not actually an activist site - they are part of the educational charity side of the Chartered Institute of Taxation and do an awful lot of work for lower paid agency and umbrella workers.

They guides are the go to place for explaining how an umbrella works, although some of the phrasing isn't as simple as I would want it to be.

[NoviceContractor]

Contact HMRC asap. They might give you an extended time to pay.

In the meantime, read this: Using an Umbrella? CHECK YOUR TAX CODE!!

In my case, the PAYE company was previously paying to my limited company. Once IR35 changes came in, they started paying me by deducting 20% tax. I did not fill any checklist for them and was never asked to get my tax code changed. My rate for this whole tax year remained the same so PAYE company was aware of my earnings from day-1.

[eek]

In my case, the PAYE company was previously paying to my limited company. Once IR35 changes came in, they started paying my by deducting 20% tax. I did not fill any checklist for them and was never asked to get my tax code changed. My rate for this whole tax year remained the same so they were aware of my earnings from day-1.

That makes no sense at all.

So let's go in small steps.

Prior to April 2021 the agency paid the money to your limited company. Post April 2021 who has been paying you and how have they been paying you?

[northernladuk]

In my case, the PAYE company was previously paying to my limited company. Once IR35 changes came in, they started paying me by deducting 20% tax. I did not fill any checklist for them and was never asked to get my tax code changed. My rate for this whole tax year remained the same so PAYE company was aware of my earnings from day-1.

But you also knew your taxable income was going to go from 10k to 80K+ or whatever. It's unfortunate but we've long said if there is a massive change in your tax situation then you tell HMRC. Don't rely on anyone else.

It's probably not a surprise to most on here that that a brolly or PAYE company have screwed the tax up as they aren't proper employers. It's a side thing they have to do to keep doing their main thing. Eek is right to ask as the devil will be in the details. As soon as you furnish the details I am sure it will become fairly apparent where the issue lies. But either way it's still your responsibility to make sure your tax code is something close to right which it isn't in this case. Far from it.