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Failure to apply P9X and P7X tax code instructions
Friday, September 3rd, 2010
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In 2009, HMRC discovered that a Mr. Cowan had underpaid tax amounting to £2,655 between 2002 and 2007. HMRC decided to hold Mr. Sasin, the employer, responsible for the under-payment on the basis that Mr. Sasin had not taken care to comply with PAYE Regulations relating to the application of tax codes.
Mr. Sasin appealed against the demand for payment and the appeal was considered by the First Tier Tax Tribunal in July 2010.
The issues before the Tribunal involved routine PAYE procedures. What decision would you have reached, based on the following facts?
- Mr. Cowan handed in a P45 when he started employment with Mr. Sasin.
- On the basis of the P45, Mr. Sasin applied tax code 702H.
- Mr. Sasin sent the P45 to HMRC but HMRC had no record of receiving it.
- Mr. Sasin received no tax code notices because HMRC continued to send them to Mr. Cowan’s previous employer.
- Mr. Sasin submitted a P14 for Mr. Cowan each year but HMRC failed to notice the discrepancy in employers.
- Mr. Sasin received P9X and P7X notices each year which, from 2005, told employers to stop using suffix H and, if any H-suffix tax codes were being carried forward to the new tax year, to contact HMRC.
Mr. Sasin did not contact HMRC but did, nevertheless, increase the code annually in accord with the P9X and P7X instructions for increasing L-suffix codes.
Despite HMRC’s failure to discover that Mr. Cowan’s employer had changed from the annual P14s, the Tribunal decided that it should have been clear to Mr. Sasin that the statutory P9X and P7X notices indicated that he was applying the wrong tax code. The appeal was dismissed, therefore, on the basis that Mr. Sasin had not taken care to comply with PAYE Regulations. Liability for the under-deduction of tax fell on the employer, not the employee.
Further information:
Mary Wallace says:
September 6th, 2010
14:30
I totally agree with the tribunal’s findings. Although HMRC were at fault, it doesn’t excuse Mr Sasin, who clearly failed to operate PAYE correctly. How could he increase a suffix H tax code when there was no provision to do so. Increasing in accordance with L suffix codes must surely have seemed incorrect to him
Claire Bartlett says:
September 7th, 2010
19:40
I agree with Mary. The employee is certainly not at fault, and whilst the Revenue make some errors in ascertaining the correct employer for the individual, ultimately, all employers were aware that H codes were being removed, and good housekeeping would have picked up any staff still on H codes, at which point HMRC should have been contacted. It is the responsibility of payrollers to make sure they are aware of all relevant legislation and the impact on the employees. If HMRC issue a clear instruction, they are issuing it to people they are assuming know what they are doing (and therein may lay the answer to this problem!)