What happens if BR code used for too long?
The First Tier Tribunal recently had to decide who was liable for the underpayment of PAYE tax caused by the continued use of a BR coding notice,
The taxpayer had started work with a new employer (NewE) in 2001. He did not have a P45 from his former employer so NewE simply deducted PAYE at the basic rate in accordance with their legal obligations. P46 forms were sent by the payroll company to NewE for the taxpayer but these were never completed. As a result he continued to be taxed only at the basic rate despite his income level being such that higher rate tax was likely to be due thereon.
On various occasions the payroll company sought HMRC’s guidance given the likelihood of higher rate tax being payable. The helpline advice was that any tax shortfall would be picked up in the taxpayer’s self assessment tax return.
The taxpayer argued that he should not be liable for the shortfall as the primary liability to deduct PAYE is on the employer, and not the employee. The Tribunal Judge however determined that the employer’s obligations were satisfied in this case and that the employee could not escape liablity for his higher rate tax liability. The position would only have been different if the taxpayer had supplied his form P45 and this had been ignored by the employer.