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Underpayment arising from use of wrong code

An employee worked for the taxpayer from July 2011 until September 2012. As a result of the employer using the wrong PAYE code the employee underpaid tax. HMRC claimed the sum from the employee but he appealed saying the employer should pay it because the underpayment had arisen from its error. The employee had written to HMRC twice to explain the employer was using an incorrect code.

The First-tier Tribunal noted that HMRC had accepted the employer’s error in applying the wrong code had been made in good faith. But the employer had failed to take reasonable care when taking on the employee. It had not submitted a form P46 which it should have done in the absence of a P45 from the employee. If it was unclear it should have checked with HMRC about the correct procedure....