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HMRC internal manual

Compliance Operational Guidance

HM Revenue & Customs
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Supporting Guidance: employer compliance: guidance by subject: settlement: direction under regulation 72F: conditions applicable

Condition A
Condition B
Condition C
Example 1
Example 2

In order to make a direction and transfer liability to the employee the conditions of Regulation 72E must apply.

From 6 April 2014 the conditions are

  • one or more employees have received a relevant payment on which PAYE should have been operated, and
  • it appears to HMRC that an amount intended to represent tax on the payment

    • is likely to have been self-assessed as income tax by one or more of the employees, or
    • has not been self-assessed, but has been paid
      • as a self-assessment payment on account of income tax under Section 59A TMA or
      • as a sub-contractor deduction under Section 559A of ICTA (treatment of sums deducted under Section 559 (sub-contractors)) or
      • Section 62 of the Finance Act 2004 (treatment of sums deducted (sub- contractors)).

The following must also have occurred

  • one of the conditions A, B and C below must be met and
  • a trigger event must not have occurred before 6th April 2008 but a trigger event must have occurred on or after 6th April 2008.

Condition A

It appears that the amount which the employer was liable to deduct under PAYE from the relevant payment (or in the case of a notional payment, from other relevant payments) exceeds the amount actually deducted.

Condition B

It appears that the amount for which the employer was required to account under Regulation 62(5) (notional payments) in respect of the relevant payment exceeds the amount actually accounted for.

Condition C

Tax on the relevant payment was included in a determination under Regulation 80 (determination of unpaid tax and appeal against determination) and the full amount of the determination is not paid within 30 days from the date on which the determination became final and conclusive.

Regulation 72F allows HMRC discretion in deciding whether a direction should be made or not. Where this regulation applies, HMRC may direct that the employer is not liable to pay an amount of tax to them.

The following are examples of when HMRC will consider a Regulation 72F direction where

  • condition A, B or C has been met, and
  • a trigger event (COG915275) has occurred.

Example 1

A compliance check on ABC Ltd results in the issue of Regulation 80 determinations on 8 April 2014 for the years 2010-11 to 2012-13. The determinations are for PAYE due on payments made to a worker, Mr D who had been wrongly treated as a self-employed consultant and as a result of the compliance check has been re-categorised as an employee. ABC Ltd has appealed against the determinations.

In this case an employment relationship has existed for the years in question and the employee has been in receipt of employment income.

The employer should have operated PAYE on the relevant payments to Mr D (condition A). The issue of the Regulation 80 determinations is a trigger event and as it occurred after 6 April 2008 (and no separate trigger event occurred before that date) then provided Mr D has submitted SA returns, that appear to HMRC to include the ‘consultancy’ payments, a direction is appropriate.

Note: Condition C is that the Regulation 80 remains unpaid 30 days after it became final.

A direction cannot be made if,

  • the 30 days since it became final have not elapsed or
  • it has been paid.

Note: Regulation 9 of the 2008 Amendment Regulations makes a consequential amendment to regulation 80 of the PAYE regulations. Amounts that are the subject of a direction under the new regulation 72F must not be included if you make a determination of tax owed by the employer.

Example 2

Following a compliance check, DEF Ltd agree in writing on 16 June 2014 that they are liable for the full amount of PAYE tax on the exercise of a share option by an employee Miss B and agree to offer an amount in settlement of the liability.

DEF Ltd wrongly treated the exercise of the share option as non-PAYE income but as the option was granted under an unapproved scheme and the shares acquired were within the meaning of ‘readily convertible assets’, they failed to account for tax on the notional payment under PAYE.

The employee has received a notional payment which is a relevant payment for the purposes of the PAYE Regulations. The employer should therefore have accounted for PAYE in accordance with Regulation 62 of the PAYE Regulations (condition B). A trigger event occurred on 16 June 2014 (when DEF Ltd made a written offer of an agreed amount in settlement of the liability) and as no other trigger event occurred before 6 April 2008 a direction can be considered.