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Caught in the net

28 August 2012
Issue: 4368 / Categories: Forum & Feedback
An employer has agreed to pay an employee a net salary, which he grosses up and then pays the tax and National Insurance to HMRC. The employee’s PAYE code number has recently changed and this would, ordinarily, generate a tax repayment

My client recently took on an employee and for reasons best known to himself entered into a contractual agreement to pay the employee a guaranteed net salary – let’s say £4 000 per month.

I was not aware of this until recently when a problem arose. Until now things have gone smoothly and the employer has simply used the PAYE code number and National Insurance contribution rates to gross up the £4 000 and has paid the relevant income tax and NICs to HMRC.

The problem is that the employee’s PAYE code number has recently been amended upwards. In the normal course of events this would have resulted in a tax overpayment which would have been paid through his wages but is that the case here?

The employee thinks he should receive a refund while the employer is not so sure.

I have...

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