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HMRC internal manual

Compliance Operational Guidance

Supporting Guidance: employer compliance: guidance by subject: settlement: direction under regulation 72(5) condition B

Employers are responsible for the correct operation of PAYE and are normally held responsible for any failures.

However if the employer cannot pay what is due (for example because of insolvency) and an under-deduction relates to a particular employee or director, HMRC may consider relieving the employer of the liability and effectively transferring it to the employee or director. 

Action by Caseworker

 When Regulation 72(5) Conditon B is being considered caseworkers must read COG915200. A  direction can be considered where

  • an employee or director received payments knowing that the employer had wilfully (that is deliberately) failed to deduct the correct amount of PAYE from their earnings, and
  • the employee or director is not bankrupt.

For Directors

The Regulations are used most frequently against directors in small private limited companies where they are in effect acting in two capacities:

  • as the employer paying themselves employment income and
  • as an employee.

There must be firm evidence that the director at the time of the relevant payment had some stake in, or control of, the business finances of the company or was in a position to exercise such control.

Other employees

These could be

  • an officer of an unincorporated body such as a club
  • a wages clerk, manager or company accountant who had a measure of control over the relevant business finances and/or wages records
  • a shadow director controlling company finances and contriving to avoid tax deductions by that company.

There must be reasonable evidence that the employee could have controlled the operation of PAYE on their own earnings.

More information can be found in COG931110 onwards.

Penalties for incorrect returns

See COG914030.

Claiming Compliance Revenue

See COG915690.