Home For accounting professionals General accounting discussion
Current updates regarding coronavirus (Covid-19) and the precautions AAT are taking will be continually updated on the below page.

Please check this link for the latest updates:
We hope you are all safe and well and if you need us we will be here. 💚

Help with PAYE Problem

I just wondered if someone would be kind enough to give me some advice please as PAYE isn't my area of expertise. My neighbour set up his own business a couple of years ago, he is dyslexic but has managed to keep good records and submit returns ok etc.

The problem is that he took on an employee last year. The tax office told him that as long as he did not pay his employee more that £148 he wouldn't need to deduct any tax or National Insurance. So far so good. He managed to download the HMRC PAYE software and has managed to do monthly submissions but he recently got a letter saying he was in debt by nearly £800 for PAYE tax. When I've had a look for him this has all come about because he put in the wrong tax code when he took his employee on - instead of putting in the 944L code he put in BR. This means that, according to the program, he should have been deducting nearly £30 a month from his employee's pay and they handing over that amount to HMRC - he hasn't actually been deducting anything, his employee has been receiving the £148 without any deductions.

He's tried to ring HMRC but it seems impossible to get through to anyone that can advise him what to do, you get in a general queue and are then cut off as there are so many people calling the tax office at the moment. If he changes the tax code in the PAYE software will it update the earlier submissions so that he is no longer shown as owing this money and will his employee receive a 'refund' - employee will actually have to return the 'refund' as he never actually had the tax deducted in the first place.

Thank you for any help you can give.


  • Rozzi RainbowRozzi Rainbow Trusted Regular Registered Posts: 465
    Although what you have suggested (changing the tax code now so the employee receives a "refund") should clear the money HMRC think he owes them, this wouldn't actually reflect the reality of what has happened - that the employee has been paid without having any tax deducted. If it was me I would delete all the incorrect submissions on the BR tax code, put them on the correct tax code (944L is for 13/14, the standard tax code for 14/15 is 1000L - when exactly are we talking about here?) and resubmit the returns showing no tax has been deducted. This may be a pain if you are going back a long way as it looks like he is running a weekly payroll, but it will mean everything should be correct. In our software we can submit "FPS adjustments", I'm not exactly sure how the HMRC software works. If you are talking about going back to 13/14 then it might be best to speak to HMRC to find out the best way of correcting a prior year, as just changing the tax code now (as you suggest) won't give the employee a "refund" for any tax deducted in 13/14.

    On another note - is he satisfied that he shouldn't be deducting tax from the employee? Has the employee filled out a Starter Form (from the HMRC website) confirming his income status? The 944L/1000L tax code can only be used if the employee has no other job or earnings - if they have another job/pension then BR should be used. If they had another job since 6th April in the same tax year as they started this job, but this is now their only job then the tax code should be on a Week 1/Month 1 basis (the result would be the same that no tax would be deducted).
  • CelticStarCelticStar Well-Known MAAT Posts: 142
    edited January 2015
    Thank you very much for your reply, I really appreciate it. We've tried ringing HMRC umpteen times now but they just say they're very busy and cut you off so I wondered if there was anything that could be done without having to contact them. There seems to be no way of amending submission in the HMRC Basic PAYE program for this year and, obviously, the entries for 13/14 can't be amended this way as you rightly pointed out.

    The employer received a P45 in 2013/14 but didn't use the code from that to set up the new employee's record, instead they used the BR code and he has been on that code ever since, so he should have had the 944L code in 13/14 and the 1000L code in 14/15.

    Looks like it's back to contacting HMRC then!
  • MarieNoelleMarieNoelle Trusted Regular Hampshire/Surrey borderModerator, MAAT, AAT Licensed Accountant Posts: 1,432
    Payroll is not my area of expertise either but isn't it what an Earlier Year Update is for?

    Please feel free to correct me if I am wrong and/or ignore this post! :/

  • Gem7321Gem7321 Experienced Mentor DevonMAAT, AAT Licensed Accountant Posts: 1,438
    I agree, EYU and FPS adjustments
  • CelticStarCelticStar Well-Known MAAT Posts: 142
    Thank you both for your help but I am a bit confused here so please excuse my ignorance. Are you saying to go back into the records via EYU & FPS and correct the amounts that the employee has been paid so that they reflect the fact he has received £148 in his hand (net) instead of £148 gross? This will mean that the employer will then have to pay more tax over to HMRC as well as NICs as the supposed gross payment will be above the primary & secondary threshold.
  • Rozzi RainbowRozzi Rainbow Trusted Regular Registered Posts: 465
    You need to correct his tax code before you make the adjustments so the amended returns show £148 gross and £148 net.
  • CelticStarCelticStar Well-Known MAAT Posts: 142
    Yes, that's what I thought Rozzi, thank you.
Sign In or Register to comment.