Lost property cash paid through employees pay role incorrectly
Dear HM Revenue and Customs,
I have previously wrote to you in relation to lost property being found in the workplace ie public transport operator your reference FOI2024/228054.
An employee recently that was told, when they went to claim some lost property cash that it would have to be paid through payroll and be subject to tax and national insurance deductions has successfully won a grievance and will now be given the cash they found.
The company accepted the information presented that it is not earned income. However this practice has been going on for several years and has affected a number of employees who have previously been paid lost property cash through payroll and been subjected to tax and national insurance deductions plus pension deductions and it's been classed as earned income when it isn't.
There are probably some of these employees who were also in receipt of in work benefits including some on the old legacy benefits of child and working tax credits where when they did their annual declaration the total earned income would of been higher than estimated because of this error casing the payments to be adjusted suffering a loss and detriment.
There would also of been some employees on Universal Credit where it's paid in arrears and based on their earned and reported income from their employer, this would incur a higher reported income so they would have their Universal Credit reduced suffering from a loss and detriment.
Can you advise me what the correct process would be in this circumstance.
Now a successful grievance has been won employees that have previously had these deductions are wanting to know the correct procedure to get their historic cases rectified and dealt with. Can you let me know is it something they should peruse through their employer to correct and then the employer make arrangements to compensate them, or does the employer or employee have to contact HMRC to rectify and investigate.
I understand employers can complete an FPS (Full Payment Submission) would this be the correct course of action.
Any and all information revevent to this issue and getting a resolution would be highly appreciated.
Can you let me know
Yours faithfully,
Lee Odams
Dear Mr Odams
Reference: FOI2024/228054
Thank you for your two recent Freedom of Information (FOI) requests on the
tax and National Insurance contributions (NICs) treatment of cash that is
found by an employee in the workplace and given to the employee when
unclaimed.
Public authorities are required to routinely publish information about the
activities it conducts. Members of the public are also able to submit an
FOI request, which allows individuals to ask for and obtain information
that is held by a public authority.
On this occasion your request does not meet the requirement for an FOI, as
you are not requesting the publication of information held by HM Revenue
and Customs (HMRC). However, we’ve interpreted your request to ask for
HMRC’s views on the taxation of cash that was found at a workplace.
Therefore, we are happy to provide a general overview of the tax
implications with regard to your query outside the FOI Act.
Your original request asks HMRC to provide information on whether these
payments should be taxable, given that this relates to cash that was found
and not earned income, and whether tax should be deducted. We have
provided a general overview of the taxation of cash. Hopefully, this is
helpful as a broad summary of the rules. However, it is difficult to
provide a definitive answer without more information to allow us to
understand the legal basis of the transaction.
Broadly, the tax treatment would depend on who the money legally belongs
to, how long it is retained by the employer and the basis on which the
company awards it to the employee, and if it would treat amounts found by
the public in the same way. Generally, if the company holds the money for
a short period, then returns it to the employee after it is unclaimed, and
this mirrors the treatment of the funds if a member of the public had
found the money, then this is unlikely to be employment income. Where the
company holds the cash for a longer period and becomes the legal owner,
and it’s a known policy or an expectation that cash found is later
returned to the employee, then it is likely to be taxable as a benefit by
reason of employment.
If the employer does not become the legal owner of the cash, it is still
possible that the cash awarded to the employee could still be considered a
benefit provided by reason of employment. This could also impact any
means-tested benefits the employee is entitled to (such as Universal
Credit) as it may be included when calculating an individual’s benefit
entitlement.
Another relevant factor is what the company would do in the event the
person who lost the cash tries to reclaim it after it is awarded to the
employee. If the employee doesn’t assume the risk after getting the money,
and the company has to then pay the individual who lost the money, then
the money awarded to the employee is more likely to be a benefit.
In your follow-up correspondence, you mentioned that the company had
accepted that this is not earned income, and therefore, you would like to
find out how any tax paid can be reclaimed. As mentioned above, it is
difficult to determine whether the cash payments awarded by the employer
will be considered a benefit from the employment, and therefore taxable.
However, if you believe that you should not have paid any tax or NICs on
this payment, you should contact your employer to amend the Full Payment
Submission in the first instance. There’s more information in the [1]CWG2
(2024 to 2025: Employer further Guide to PAYE and National Insurance
Contributions) at section 1.22.2 - Correcting a current or previous year’s
payroll entry for real time information tax years.
If you are unable to resolve the matter with your employer, you should
write to HMRC at Pay As You Earn and Self-Assessment, HM Revenue and
Customs, BX9 1AS and provide evidence confirming why the payment has been
taxed in error.
I hope this overview is helpful and if you have any further questions,
please contact the HMRC helpline.
Kind regards,
Employment Income Policy Team
HM Revenue & Customs logo Individuals Policy Directorate (IPD), 100
Parliament Street, SW1A 2BQ
Email: [2][email address]
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