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Sam
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Category: Tax
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Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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Background I have been working under PAYE for the same employer

Resolved Question:

Background

I have been working under PAYE for the same employer for over 9 years.

My home is in the North East of England but my employer is based in London.

For first year I was on a project in Leeds and then my employer brought me to London to await the next project outside of London.

My travel expenses were reimbursed at cost by my employer via company expenses. My accommodation was found or selected by the employer in the form of a hotel 4 nights a week and paid direct by the company.

The next project outside of London did not arise and for effectively 8 years I have been working in London under this same arraignment.

My employer has always dealt with tax and the completion of my P11d.

I was informed yesterday that after 2 years London should have been deemed my place of work and as such this arraignment should not and can not continue. In addition they implied that I would be personally liable for any unpaid tax.

I suspect that this is a mechanism to force the end of my employment but ahead of this my questions are:

1. Is this correct?
2. What is the potential liability consist of?
3. Does my employer not share or have their own financial penalties?
4. If so what is the extent of their liabilities?
Submitted: 2 years ago.
Category: Tax
Expert:  Sam replied 2 years ago.
Hi

Thanks for your question, I am Sam and I am one of the UK tax experts here on Just Answer

For me to answer your questions could you advise
1) What does your employment contract state as your place of employment (geographically)
2) Has your employer always been based in London for the time you have been employed with them
3) Have you paid tax on these expenses(either through the P11d on the hotel expenses and other associated costs) and if not what exactly was the P11d advising HMRC of.


Thanks

Sam



Customer: replied 2 years ago.

Sam thanks for getting back to me so quickly my original contract of employment dating back to 2005 states my place of work is the companies London office.

Since coming to London if have been promoted twice, had numerous pay rises and bonus payment including a retention bonus to stay with the company at the end of my 2nd year but at no time has this matter been raised with me including company consultation when joining the company pension scheme and then again when the scheme providers were changed to a salary exchange scheme.

Whilst my parent employer is a global company the only England office is that in London.

I have not personally paid tax on the hotel costs and do not have sight or full knowledge on what they are as this was all taken care of by the company including the specific hotel that they put me in at all times. I believe that are in the region of £20-25k per annum.

My expenses were submitted generally monthly and the company issued remittance advice and deposited the money back into my account. Initially this was £145 a working week raising to currently £199.95 which is the cost of a return train ticket from London to Newcastle.

The only item on my P11d's to date is my private medical. I know this as I had to complete a self assessment for the first time in Jan as my wife had been receiving Child Benefit and I earn over the threshold.

Thank you
Expert:  Sam replied 2 years ago.
Hi

Thanks for your response and the additional information.

I am afraid that the news is not good, as your contract of employment (and its the original that this is based on, as pay rises/promotions do signify a change to the original contract, but the basic terms would remain the same) state that your place of employment is London.
So all costs to and from this location to work, are deemed to be normal travel to work, and any expenses paid in connection with that SHOULD have been liable to tax.

Its fine that the company reimbursed you, but then this should have either been reported on a P11d so that it could be added to your income and the medical benefit after each year end OR paid to you through your salary so subjected to tax.

So to address your specific questions
1. Is this correct?

Yes I am afraid it is
2. What is the potential liability consist of?

All the expenses paid per tax year liable to your highest rate of tax.
There is scope to try and appeal this on the basis that your employer made good the reimbursement without deducting the tax, and you had every reason to believe that the lack of tax deduction merited the payments to be free of tax, on the basis of the employers knowledge in such matters.


3. Does my employer not share or have their own financial penalties?
Yes - they could be subject to penalties on the basis they failed to operate the expenses and benefits legislation correctly.
And of course the consideration for Class 1A national insurance. (Either through what was due on the salary or through the P11d position)


4. If so what is the extent of their liabilities?
As advised at 4.


Do feel free to ask any follow up questions

Thanks

Sam



Sam, Accountant
Category: Tax
Satisfied Customers: 13699
Experience: 26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
Sam and other Tax Specialists are ready to help you
Customer: replied 2 years ago.

Sam just a few quick follow up questions is there any idea of what the penalties would be to my employer for not operating correct? Is this a fixed value fine or percentage? Also is the Class 1A that the employer must pay around the 13.8%?

Finally is this back dated to the commencement of my employment as technically the first year was away from the London office and then does the 2 year rule start after 2 years in London?

I am trying to get a handle on the magnitude of the problem and what my next steps need to be.
Expert:  Sam replied 2 years ago.
Hi

Thanks for your response

I am afraid that would be impossible to say, as
1) its dependent on whether HMRC go down the payroll or P11d route to recover the amounts and
2) Whether they feel this was an oversight charging just 30% penalty of deliberate at 100% charge (which is applies against the lost revenue due)

Yes its 13.8% whether a benefit charge for Class1A OR through the Employer National Insurance due through the payroll.

HMRC will want to backdate this for at least the last 3 years (in date tax years) but may choose to go back to when your employment saw tax free expenses being reimbursed (so if this also applied for trips to London whilst you were based working in Leeds, then it will still be considered as your contract has always identified London as your main place of employment) - much will be dependent on whether they have instigated this review or the employer have identified the issue themselves.

But for you as an individual if we are saying that its been an award of the train ticket and hotel expenses for at least the last 3 years amounting to say approx. £25000 a year at your highest rate of tax (I shall use 40% as a guide) = £10,000 a year (So £30,000 for the initial last 3 years)
And for the Employer - could be as much as £2156 Class 1A per year x 3 = £6468 plus up to 100% of that amount or as little as 30% for penalties

At this stage as the employee - I would wait until HMRC contact you, but do establish with the employer how this position arose, and what involvement HMRC have at this time, and whether they plan to bear the TOTAL costs of their mistake.

Ask them to supply you with
1) Details of expenses payments made - both for the Hotel, Train Fares and any other expenses for as many years as they are able
2) Ask them also to provide you with any correspondence pertaining to this situation, between them (the employer) and HMRC
3) Ask them to provide you, in writing - what steps they are to take to resolve this issue, and are they to prepare amended P11ds for the years in question? Will copies of these be supplied to you, and what steps you should take.

The bottom line is this, when HMRC approach you, which I expect them to at some point, is that you appeal the position - and if you need any help at that time with preparing a suitably worded letter of appeal, then do feel free to come back to Just Answer, and if you would prefer you can ask for me Sam Tax (just ask for me in your opening post)
And it would then be useful to already have had the information from the employer, as to how this could have happened - (which is why I ask you to get in writing those questions answered BEFORE you alert the employer that you plan to appeal to HMRC against any monies they may see fit to chase you for)

Thanks

Sam

Thanks

Sam





Customer: replied 2 years ago.

Thanks Sam this IPAs really helped put the issue into perspective and I will indeed come back to you when the time arises.

Thanks again
Expert:  Sam replied 2 years ago.
Hi

You are very welcome

Thanks

Sam

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