In Feb 2011 my partner signed up for childcare vouchers - £243 per month.

The vouchers came through to us and we used them, as you do. In Oct they informed him that they had NOT been taking the £243 from his salary for these, so he has £2187 to repay.

Now, these deductions come out BEFORE Tax and NI is calculated and deducted, and so you pay less. So, going based on his base salary he paid £631 MORE in tax and NI than he would have if the deductions were taken off. He also took home £1982 more than he would have if they had been taken off.

This is calculated on his base salary, as he every month has varying overtime, so nett pay never the same each month.

He is now repaying it - £200 per month. But, they are taking salary, adding Overtime then taking off the proper £243 for the voucher calculating Tax and NI and THEN deducting the missed payment as an Advance.

Is this correct? As they plan to take the full £2187 as an advance........so he is repaying that amount. However, he really only recieved £1982 more than he should have. And has also paid more Tax and NI than he would have.

Surely they have to take the Repayment before Tax and Ni, so that it balances out how much he should have paid?

He has spoken to HMRC, but they say that they do not really administrate or have anything to do with Vouchers or how they work so they cannot advise . And no one seems to know. I do not really trust my partners Payroll as they have messed up a fair bit - such as taking 70% of his salary as tax one month, then being adamant they were right till We got HMRC to call them and tell them they were wrong.

Any advice appreciated. Just so that I know they are doing it right, or if they are not, how should it be done?

It may be worth contacting ACAS for some advice on this 084547 474747

HMRC are correct that they do not have any envolvement in the administartion of the scheme but the company do have to let them know that they use the scheme so that is why they can't help you.

Thanks, Never thought to try them, will give them a call today.

Just seems like such a grey area that no one really seems to be fully in charge of.

Hi Wishful

The Childcare vouchers are exempt from tax and NI up to £55 per week so why are they factoring in the tax and NI????

Can I suggest you look at booklet E18 on HMRC website (just put E18 in search box on website) and check the details that best fit your scenario.

The vouchers are usually dealt with by salary sacrifice which is where you agree to give up an amount of salary equivalent to the cost of the vouchers, this is usually effected by a change to your contract.

HMRC do not give advice because they are the adjudicators in cases of dispute.

Have a read of E18 and then post back here if you've any queries

Regards

Gbarbm

Thanks Gbarbm, I had a wee read through and it covered my basic understanding on the vouchers. My query is more what should happen, if the employer has NOT been taking the salary sacrifice from the Employee. And then they require the employee to repay it.

They are now taking the £243 as salary sacrifice as normal as we are still receiving the vouchers, but they are then after Tax and NI taking £200 a month as repayment of an 'advance'. They want him to repay the full £2187 that should have been taken by salary sacrifice.

Sorry to ask more questions, just trying to get my head around what happened.

So they gave your partner the vouchers but did not deduct them from the gross pay. So that means in those months he received his normal gross pay?

So the tax/NI deducted was based on normal gross pay during that period... Is my understanding correct?

Sorry if I seem a bit thick...just making sure I understand exactly what happened

Sorry to ask more questions, just trying to get my head around what happened.

So they gave your partner the vouchers but did not deduct them from the gross pay. So that means in those months he received his normal gross pay?

So the tax/NI deducted was based on normal gross pay during that period... Is my understanding correct?

Sorry if I seem a bit thick...just making sure I understand exactly what happened

No that is 100% correct

Good, good... The mists are clearing. ;-)

Right then,

1) the salary sacrifice (equivalent to the cost of the tax/NI exempt voucher of £243 per month) reduces the gross pay by the same amount

2) tax and NI is then deducted from the true gross pay ( gross pay less voucher cost)

3) the amount of tax/NI due and payable will be less than normal gross pay because it has of course been reduced by the salary sacrifice

That's what should have happened

What did happen was;

4) the normal gross pay was paid ... Let's say £2000 for example the vouchers were paid (£243) so the taxable amount would have been £2423 less free pay (code 747L equates to £7479 per annum divided by 12 = £623

£2423 - £623 = £1800 which would be liable to tax/NI

5) however, it should have been £2000 less £243 = £1757 - £623 = £1134 taxable

So you can see that the tax liability will obviously be less not more

I think payroll should be offsetting the difference between the two amounts as an in year adjustment.

Is this an in house or outsourced payroll do you know?

The reason I ask is if it is outsourced, your partner may get a better response if he speaks to them rather than Doris in wages if you know what I mean.

I hope I haven't confused you too much; it's not the easiest of subjects to explain!

Regards

Gbarbm

Cheers. I 'think' I understand it.

It is an Outsourced Payroll - makes it very difficult to get hold of anyone and they make numerous mistakes as it is! His HR dept had asked for the whole thing repaid in TWO payments and he told them to shove it!

I have asked him to get hold of all his payslips from Feb - Oct 2011, so I can use one of the salary calcs to see what the exact figures are.

I may just be over thinking it all, I just REALLY do not want to be hit with a tax demand etc in April , or him pay back more than he should (his employers do NOT deserve it!! haha) so trying to get this all clear

When he gets all his payslips he can use the checker on HMRC website (see below) then once armed with the figures, he can write to HR/wages section and see what their response is.

Income Tax - quick check calculator

If you're aged under 65, a basic or higher rate taxpayer - 20 or 40 per cent - and you get the basic Personal Allowance, you can use HMRC’s simple tax checker. It'll help you to find out if you're paying about the right amount of tax.

You'll need to have ready details of:

your total earnings for the tax year before tax was taken off

the total tax you paid on your earnings

the amount of interest you had from bank and building society savings after tax was taken off

the total tax you paid on bank and building society savings

the total amount of any Gift Aid donations you've made

The tax checker will only give you an estimate. You might get other types of income, allowances or benefits that affect the amount of tax you end up paying.

Go to tax checker

Get basic information about Income Tax