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

[sri2uk]

Thanks WindyAnna, for showing some light in this issue. This will be useful for many contractors like me who believe Umbrella companies and will have no knowledge on whether they pay the Tax or not. Others view are appreciated.

[WindyAnna]

Here's my experience as an employer (nothing to do with being a contractor, I employ some nannies).

I had a payroll company who were doing the nanny wages for me, they were taking the gross amount plus employers NI from me, paying the nannies and providing them with payslips. They were also supposed to be paying HMRC. At first quarter end they were due to pay them but didn't! The tax & NI had been deducted at the correct rate and the payslips reflected that but HMRC had not been paid. It was me - as the employer - that HMRC came after, they made it very clear that I was liable to pay it. They were sympathetic about the payroll company issue and gave me some time to sort that out (I did) but there was never any question of them going after the nannies for it in any conversations.

Windy

[sri2uk]

What I *think* they are trying to guard against is:-

- I set up MyDodgyCo
- I run PAYE for the salary and "forget" to to pay the PAYE
- I spend the PAYE on booze and other necessities.
- I wind up MyDodgyCo (or the taxman does) and say "tought mate, we've spent all the dosh so you can just sing".

You are right in this case. But if it is a genuine one and ur no way related to the company then what happens. If you are with an umbrella company, you dont have any relationship with the company other than a document stating that you are an employee of the company. In the above case you have mentioned about winding up the MyDodgyCo, even winding up will not delete the records on the ownership information am I right?

[ASB]

ASB, if the employee gets hit cant he appeal showing all his bank statments and payslips, also with the contract which tells that he is contracted for £xxx amount and he as got only £xx which is specified in the payslip.
Will this be like another IR35 case dragging for years ? Will the tax man not use some common sense to figure it out. I am aware of the saying in the eyes of law "A person is innocent until proven guilty" and in the eyes of tax man "A person is guilty until proven innocent" I pray robinhood days should come back soon.....

God knows. It's new law. I would *hope* the taxman would take the view that because company A has decuted the correct paye but not handed it over he won't go after the employee. But the rules in the link don't *seem* to force that.

What I *think* they are trying to guard against is:-

- I set up MyDodgyCo
- I run PAYE for the salary and "forget" to to pay the PAYE
- I spend the PAYE on booze and other necessities.
- I wind up MyDodgyCo (or the taxman does) and say "tought mate, we've spent all the dosh so you can just sing".

This goes on quite a lot. Previously HMIT taxes was in a bit of a bind. The only way he could transfer the liability was to prove fraud and then he could only transfer it to the directors personally anyway.

As ever, the legislation seems to be drafted a bit wide of this and theoretically *appear* to let them potentially transfer liability for any unpaid PAYE in any circumstance to the employee.

[NotAllThere]

...and in the eyes of tax man "A person is guilty until proven innocent"...

A person is guilty until proven innocent, in which case we'll get the law changed.

[sri2uk]

ASB, if the employee gets hit cant he appeal showing all his bank statments and payslips, also with the contract which tells that he is contracted for £xxx amount and he as got only £xx which is specified in the payslip.
Will this be like another IR35 case dragging for years ? Will the tax man not use some common sense to figure it out. I am aware of the saying in the eyes of law "A person is innocent until proven guilty" and in the eyes of tax man "A person is guilty until proven innocent" I pray robinhood days should come back soon.....

[ASB]

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.

I'm not sure it does. If the deduction is made from pay but not accounted for (i.e. not paid over) then it seems that the amount of tax required to be accounted or accounted for exceeds that which was actually deducted or accounted for, thus potentially they could go after the employee.

This does seem somewhat unreasonable though. Employer deducts but doesn pay, so it's the employee who gets hit. Presumably there will need to be some mechanism that stops themmaking a dtermination in this case to allow the legislation to kick in but I cant see anything that actually prevents it.

[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.

[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?

[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

[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

[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

[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.

[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?

[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.