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My client has been engaged in a secondary part-time employment for the past four years, amounting to earnings of about £30 per week. Initially this was in addition to a full-time youth training scheme, but latterly as full-time employment.
The fact that this was secondary employment was made known to the employer at commencement, but no steps were taken to initiate a PAYE scheme. My client is now worried about a pay-as-you-earn underpayment.
My client has been engaged in a secondary part-time employment for the past four years, amounting to earnings of about £30 per week. Initially this was in addition to a full-time youth training scheme, but latterly as full-time employment.
The fact that this was secondary employment was made known to the employer at commencement, but no steps were taken to initiate a PAYE scheme. My client is now worried about a pay-as-you-earn underpayment.
It appears that, based on a breach of the employer's obligation to deduct pay-as-you-earn, recovery from the employee under Regulation 42(2) of the Income Tax (Employment) Regulations can be ruled out. Similarly, Regulation 42(3) can be dismissed and the correct course of action should be a Regulation 49(2) determination on the employer. Failure to deduct tax can only be attributed to the employer or the tax office concerned.
However, advice from the new tax and benefits helpline appears to shift the onus onto the employee. Its advice is that the employee should contact the Inspector of Taxes, who will accordingly raise an assessment on the employee. Once 'in the system' the assessment can be appealed on the grounds stated above, with any tax postponed.
Even assuming a favourable conclusion to the matter as regards the employee, my client will be very reluctant to adopt the advice of the helpline. Readers' views on the scenario would be appreciated.
(Query T15,789) – Nic.
The responsibility for payment of tax and National Insurance is placed firmly on the employer by the Pay-As-You-Earn Regulations. Therefore, unless the employee has played a part in the failure to pay pay-as-you-earn, the Revenue cannot use the regulations to pursue the employee. As long as the employee has not misinformed his employer in connection with his status, there seems little which the Revenue can do to recover pay-as-you-earn from him. In fact, it seems that it is not in the interests of the Revenue to pursue the employee, since the Revenue compliance manuals instruct officers not to raise an assessment on the employee in case it prejudices any case they may have against the employer (Employer Compliance Manual at paragraph 12160).
However, this is a separate matter to the employee's obligations under self assessment. Sections 8 and 9, Taxes Management Act 1970 create an obligation to self assess underpayments of tax. If 'Nic's' client has not completed self-assessment returns and paid the tax due on the untaxed earnings, he will be subject to interest at least on any tax which is now due and unpaid. If returns were issued and not completed by the due dates, a penalty of £100 will be payable in respect of each missed return and a further £100 will be due in respect of each return issued for years prior to 1999-2000. – Little Bird.
The approach to this problem may lie in the circumstances in which it came to light. Was 'Nic's' client unrepresented up until now but has only just engaged 'Nic', who has alerted his new client to the problem? Or has the client waited until now to draw this to 'Nic's' attention? There are two sides to the coin. Under self assessment there is an obligation on the taxpayer to notify the Inspector of Taxes that he has received an untaxed source of income. The Inspector would then issue a self-assessment return for completion. 'Nic's' client has failed on this score. The employer on the other hand has assumed that the payment made was below the National Insurance contributions threshold and has, therefore, not included 'Nic's' client in the pay-as-you-earn scheme. If 'Nic's' client was hitherto unrepresented, it may be possible for the client to state to the Inspector of Taxes, as I have helped a new client to do, that as he had notified the employer that he had two jobs, he could reasonably have expected the employer to operate pay-as-you-earn properly and, therefore, any liability on him should be waived. In my client's case, over £3,000 tax was waived.
The Inspector should in any event pursue the employer first. The employer will only be able to recover any pay-as-you-earn due from the client for the current year in the current tax year. As we have just passed 5 April, no tax will be collectible from the client for earlier years. I have just assisted a client in a self-assessment enquiry where the Inspector pursued my client for not operating pay-as-you-earn where his 'employees' had not registered for self assessment as self-employed individuals. The Taxpayer's Charter dictates that all taxpayers should be treated equally.
I hope this provides 'Nic' with several options for countering the helpline's approach. – Dumblie.
