This is a prime example why paying employees net is a very bad idea. It makes the company shoulder the risk of whatever weird and wonderful tax situation the employee might happen to acquire. The correct answer is to pay people gross, and do the deductions in the first place which makes the employees responsible for their own tax affairs. This kind of situation cannot really be solved after the fact.
-- Edited by Tom McClelland on Friday 19th of April 2013 03:37:17 PM
Long story short we had two companies on our payroll owned by the same person. The owner died and one company was closed down and the other was taken over by someone else.
There are two employees on this remaining company payroll, one being the new Director and one normal employee. They are both net to gross, net being £500.
However this employee used to work for both companies up until the other company closed in October 2012. Although HMRC have received submission of his P45 for the other company, his tax code has never changed from D0. His new tax code for the new tax year is still D0.
The amount of tax and NI coming off each week is ridiculously high. His gross amount is coming out at approx £950 every week.
The new Director is absolutely livid because he isn't going to be refunded of the tax and NI but the employee will be, even though its the company that has had to foot the bill just to pay him the net of £500.
Does anyone know how this can be sorted out? Our tax department have already written to HMRC to get the employee a refund, but I can understand why the new Director is upset that all this money paid out of the company (£10000 in all) could be paid to the employee all because payments were set as net to gross to get the net as £500 if that makes sense.
