If Umbrella company fails to pay tax, who is responsible ?

[sri2uk]

Hi
I am a newbie to this site. Very nice interesting topics covered in this board.
I tried searching my query but couldn’t get any straight answers.
Ok this is my question. One of my friends has come across a situation like this:
If an umbrella company which you are tied up with for your contract purpose tends to be a dodgy one and does not pay your taxes and NI then who will responsible?
Will HMRC come knocking your door step for the taxes and NI or is the umbrella company responsible for the tax as you are an employee of the company?
Your answers and suggestions much appreciated
S

[sri2uk]

hi
its me again, does no one have an answer for this. I think many people will be in the same situation as we all dont know whether the umbrella companies are really paying any employer NI or tax which they show it on the payslip given to us. Any view on this will be appreciated
S

[NotAllThere]

According to lawcom.gov.uk

"In relation to PAYE fraud the courts have taken a particularly harsh view. They almost seem to impose a positive duty on employees to report their employers to the Revenue if they are concerned about the non-payment of PAYE."

And there's some stuff about transferring liability for tax from employer to employee here

I'd guess, however, that as long as deductions were made, even though not passed on, you wouldn't be liable.

[malvolio]

hi
its me again, does no one have an answer for this. I think many people will be in the same situation as we all dont know whether the umbrella companies are really paying any employer NI or tax which they show it on the payslip given to us. Any view on this will be appreciated
S

If you are getting a payslip indicating you are being paid net of tax and NICs (which you ought to be able to guesstimate at you receiving around 65%-70% of your charge rate) then I don't see how you can be liable. As you say, you are the employee: you are responsible for your own tax but you are paying someone to do the mechanics for you.

However, if you have any doubts at all that the company you are using to sort out your taxes and who you are paying to do so are not actually doing so, or are acting fraudulently in some way, then why the hell are you still with them?

[ASB]

then I don't see how you can be liable. As you say, you are the employee: you are responsible for your own tax but you are paying someone to do the mechanics for you.

You might think that. But you may well be wrong. The new regs allow the transfer of liability. One relevant bit:-

"the amount of tax which the employer was required to deduct or account for in accordance with the PAYE Regulations in relation to the relevant payments exceeds the amount of tax actually deducted or accounted for"

The fact that the employer has deducted it no longer seems good enough.

[sri2uk]

Hi guys
Thanks for your responses. Just think of this situation. I called up HMRC yesterday to ask them how much tax as been paid through my PAYE all they where able to answer is "You have to check your P60 to see how much tax you have paid, If you think you have over paid then with a letter to the HMRC you need to send your P60 to get a refund" This is what their response was, they dont have any information on how much of the tax is paid or how much of the employee/employer as been paid for me. If this is the case how can we clarify whether the company as paid the tax or not, even though they deduct it from our pay according to the PAYE regulations?
S

[sri2uk]

Hi
I agree with ASB but what happens if the employer is taking more tax than they need to and not paying a penny to the taxman. Are we then liable ?
Ex: Gross sal £1000
Tax to be taken : £300
But employer deducts : £350
Paid into my bank : £ 650
Payslip shows : £650
So they have already taken 50£ in excess and have not paid anything to the tax man. So what happens now in this situation how does the "Transfering PAYE liability from an employer to an employee" work ?.
This would also have happened in the case of a umbrella company which went into administration recently.
S

[sidknows]

the employer is liable for any unpaid tax and ni and the emloyee nothing as all his tax and ni is being deducted at source

[NotAllThere]

the employer is liable for any unpaid tax and ni and the emloyee nothing as all his tax and ni is being deducted at source

Did you follow the link in my post above?

[NickFitz]

And there's some stuff about transferring liability for tax from employer to employee here

Did you follow the link in my post above?

The relevant part of the document you cite seems to me to be:

"...where the following conditions are satisfied:

<snip />

the amount of tax which the employer was required to deduct or account for in accordance with the PAYE Regulations in relation to the relevant payments exceeds the amount of tax actually deducted or accounted for"

This implies that the purpose of this is to ensure that, if an employer has made insufficient deductions of tax - in other words, the employee's take-home pay has been higher than it ought to have been - then the tax authorities are entitled to look to the employee for the missing money.

Furthermore:

The employer will remain potentially liable to penalties on the full amount of tax which should have been deducted, or accounted for, in accordance with the PAYE Regulations.

suggesting again that although the purpose is to recover monies paid to the employee which should rightfully have been deducted, this is not an attempt to transfer liability for penalties, and therefore the imputation of wrongdoing, to the employee.

So (IANAA etc) it seems to me that that document is not relevant to the case where full, or even excessive, deductions have been made, yet (without the knowledge of the employee) withheld from the Revenue.