When paying tax the first time is just not enough

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wemorgan

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A cautionary tale, that I hope no one else is caught by.

From 2005 until 2007 I was an employee of a UK Ltd company, working on secondment in France. I had a contract with them such that I would not incur any additional taxes over and above what I would have paid in PAYE had I been a UK resident. Each month they deducted 'hypothetical tax' from my salary. At the end of the UK and French tax years they employed an accountant to file my tax returns. Then when I received my tax statement my employer paid it, using the money they had already deducted from my salary.

It all went wrong at the end of last year when my employer went in to administration. At the same time the accountant advise me that I needed to file an amended 2005/06 tax return. Also my 2006/07 had never been completed because my employer had delayed giving necessary information. Both tax returns have now been completed and I now owe HMRC many thousands of pounds.

The administrator says there is no money to make any payments for me. I've also been advised by a solicitor than I am solely liable for my taxes. So now this morning I've written a cheque to HMRC to pay my tax (again), with a covering letter explaining my situation. But I'm not holding my breath waiting for any positive news.

So in short. Don't always trust your employer to make the correct legal and moral decissions.

Well and truly hacked off............

****whistles to self Monty Python's Bright side of life******
 
Bad luck. Whilst your tax liabiliites are your responsibility, it may be worth having a more detailed chat with the accountant (does he work for you or the company?) re HMRC practice, and also with your lawyer about any preferential creditor status you may have over the company's assets - I can't recall the detailed rules, but whilst HMRC are no longer a prefrential creditor in such situations, this sounds like the payment - albeit to HMRC - is actually a debt to you as employee, so if (as I believe is the case) wages/salaries etc are preferential then you may have a higher claim than the adminsitrator thinks if he is simply treating HMRC as the creditor.

You should also ask your accuotnant to look into the possibility fo an equitable liability claim - really really complex area, and don't get your hopes up, but effectively a way for HMRC to remit tax that is legally but not equitably due.

All the best.
 
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I'm not really clear what you're saying - Who did your employer pay tax to the first time - the French authorities?

Does it seem that you didn't pay enough tax, not that you're having to pay it twice?

If you'd been considered to have been domiciled in France then your personal tax would have been a lot lower than in the UK.
 
HIs employer did the calcs and just kept the cash, never paid it or submitted a tax return for him.
 
I'm not really clear what you're saying - Who did your employer pay tax to the first time - the French authorities?

Does it seem that you didn't pay enough tax, not that you're having to pay it twice?

If you'd been considered to have been domiciled in France then your personal tax would have been a lot lower than in the UK.

Yes, sorry I didn't give all the facts, as I didn't want to write too much of an essay.

My 2005/06 UK tax was an ammendment, due to benefits received not previously declared. My French tax was fully paid. The benefits received included having my French tax paid, despite tax being deducted from my salary.

My 2006/07 UK tax was for the whole year. My French tax was fully paid, then refunded due to not spending a full tax year in France. The net difference as you said is large, since French income tax is a lot lower than UK tax.

The total tax bill I now face is equal to a full years PAYE tax. Ouch.

My mistake in all this, was as an employee to put faith in my employer and employer's accountant to represent my best interest. When clearly and now obviously they were looking at their best interests.

Now I'm self employed, I'm a lot more street-wise regarding taxation.
 
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Just a couple of thoughts: Did they screw up your NI contributions too, and (maybe this is too simplistic) surely you shouldn't be required to pay tax on income you did not receive, i.e. the portion that was "deducted for tax purposes" by your former employer?
 
Just a couple of thoughts: Did they screw up your NI contributions too, and (maybe this is too simplistic) surely you shouldn't be required to pay tax on income you did not receive, i.e. the portion that was "deducted for tax purposes" by your former employer?

Thankfully I specifically asked to continue my NI payments, to keep up my state pension contributions.

The accountant confirmed to me that my French tax paid for me was considered as a benefit, which needed to be declared in my UK self-assessment. This seemed wrong to me, as it effectively taxes the deductions that my employer was taking from my salary. This is all a very sobering lesson for sure.
 
The accountant confirmed to me that my French tax paid for me was considered as a benefit, which needed to be declared in my UK self-assessment. This seemed wrong to me, as it effectively taxes the deductions that my employer was taking from my salary. This is all a very sobering lesson for sure.

That does seem illogical. You either pay tax in the UK or in France. How tax being paid in France could be considered a benefit in the UK is baffling. (I'm not saying it's not correct, just baffling).
 
We do this all the time for staff we have moving around the world. It is incredibly complex, but the tax treaty with France ( and most countries) means that you should not have to pay any more than you would have under PAYE.

What should have happened (ideally) - according to our tax accountants - is that you should have continued to have your salary paid and taxed in the UK, with any french liabilities netted out in your return.

However, we pay nearly £3.5k per person per year to get this done right - it's very specialised...and this is a layman's interpretation of a phone conversation this afternoon!
 

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