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HMRC internal manual

Compliance Operational Guidance

Supporting Guidance: employer compliance: guidance by subject: penalties: if an employer or contractor is relieved of the liability by a direction

COG914025 explains that penalties are not appropriate if an employer or contractor is relieved of the liability by virtue of a direction under Regulation 72(5) Condition A - COG915180 or Regulation 9(5) Condition A - COG909380 respectively.

You must consider directions under both Regulation 72(5) and Regulation 9(5) prior to the issue of formal determinations under Regulation 80 or Regulation 13 respectively. If a direction is given the tax/CIS deductions included in it must not be included in the formal determination.

Once the determinations are issued the legislation does not provide for Regulation 72(5) or Regulation 9(5) directions to be made.

Penalties should be considered if an employer or contractor is relieved of the liability by virtue of

  • Regulation 72(5) Condition B - COG915185, or
  • Regulation 72F - COG915245 onwards
  • Regulation 81(4) Condition A or Condition B - COG915190, or
  • Regulation 9(5) Condition B - COG909380 

Note: You should make a decision on the actions and behaviours of the employer/contractor in relation to directions given under Regulation 72F as the imposition of a penalty will depend on the circumstances of the case.

However if a Regulation 80 determination is made and

  • the employer does not pay the amount determined, and
  • you are of the opinion that the employee knew of the wilful (deliberate) failure of the employer to deduct tax

then you can recover the tax from the employee by virtue of Regulation 81(4). This is purely a collection issue and does not detract from the original employer failures.

If the employer has been relieved of paying the liability but you consider they were negligent (or worse) in the submission of the relevant employer or contractor returns you should still consider a penalty for submission of the relevant incorrect returns based on the amount of liability on which the employer or contractor was relieved (COG914070 - Incorrect end of year returns and COG914300 - CIS Incorrect monthly returns).

You should also consider a penalty if the employer/contractor has failed to make any returns COG914045.

The practicality and viability of the imposition of a penalty should be a considered where a direction is made because the employer is unable to pay the PAYE liability (for example because of insolvency).