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HMRC internal manual

Compliance Operational Guidance

Supporting Guidance: employer compliance: guidance by subject: settlement: direction under regulation 81(4) condition A or condition B

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

Occasionally these failures are recovered by Regulation 80 Determinations made on the employer (COG915150).

If the employer cannot pay what is due (for example, because of insolvency) and an under-deduction, or a failure to account, 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.

HMRC will consider making a Regulation 81(4) direction if the regulatory tests are met. Regulation 81(4) Condition A and Condition B directions are made by Employment Status & Intermediaries (ES&I) or Specialist Investigations (SI) - see COG915200.

The following provisions of Regulation 81 apply:

Employee liability if tax unpaid after regulation 80 determination

Regulation 81 applies if

  • any part of the tax determined under regulation 80 is not paid within 30 days from the date on which the determination became final and conclusive, and
  • condition A or B is met in relation to an employee.

Condition A is that HMRC are of the opinion that the employee in respect of whose relevant payments the determination was made has received those payments knowing that the employer has wilfully failed to deduct the amount of tax which should have been deducted from those payments.

Condition B is that the unpaid tax represents an amount for which the employer was required to account under regulation 62(5) (notional payments) in relation to a notional payment to the employee.

ES&I/SI may direct that the employer is not liable to pay the amount of tax which appears to them should have been but was not

  • deducted on making those relevant payments, or
  • accounted for under regulation 62(5).

If a direction is made, the amount of tax must not be added under regulation 185(5) or 188(3)(a) (adjustments for self-assessments and other assessments) in relation to the employee.

The Condition A provisions above are similar to those under Regulation 72(5) Condition B. Further details about what you should consider in relation to employees and directors in ‘wilful failure’ cases can be found at COG915185.

See INS8108 for more details

Action by Caseworker

See COG915200.

Penalties for incorrect returns

See COG914030.

Claiming Compliance Revenue

See COG915690.