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HMRC internal manual

Compliance Operational Guidance

Supporting Guidance: employer compliance: guidance by subject: settlement: from whom to seek settlement

Whether the employer or the employee is approached to settle the liability depends primarily on who is responsible in law, but there are some exceptions, see COG915175 - Payment sought from Employee.

Generally the following guidelines apply for settlement.

Duty Type of Payment Who is responsible for settlement
Income Tax deductible under PAYE Employment income in cash, including directors’ earnings Employer
Income Tax not subject to PAYE Non-cash payments such as benefits in kind, pecuniary liabilities Director COG930060 - Recovery From Director Personally


other employee (but we usually invite the employer to settle the other employee’s liability)      
  NIC Employment income in cash, pecuniary liabilities, benefits in kind Employer (both primary and secondary contribution) and Class 1A

Note: The employer is responsible in law for any failure to operate PAYE properly and is required to make good any failure to deduct tax.

In such circumstances, you should not settle direct with an employee or director as the settlement is technically incorrect and it could harm HMRC’s position if any other PAYE failures by the employer come to light.