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HMRC internal manual

Compliance Operational Guidance

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HM Revenue & Customs
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Supporting Guidance: employer compliance: guidance by subject: settlement: direction under regulation 72F: action by caseworker - considering a direction

Once you have established that a PAYE failure has occurred, you should calculate the amount of the liability due as a result of the failure.

As the employer does not have to request or apply for a direction you should consider whether a Regulation 72F direction is appropriate.

To do this you will need to determine whether the employee is registered for self-assessment, and

  • an amount intended to represent tax on the relevant payment has been included in the employee’s SA return as Income tax, or
  • has not yet been included in the employee’s SA but has been paid as a

    • SA payment on account of Income tax or
    • subcontractor deduction.

For the purpose of these regulations tax is self-assessed if it is included in a return under section 8 of TMA which includes a self-assessment and ignoring any relevant credit, the tax is or would be assessed as payable by way of income tax - see Regulation 72E(7)

Note: the tax has to be payable by way of income tax and so if any other type of tax is assessed as payable (for example capital gains tax) it has not been self-assessed for the purpose of these regulations

You will normally have to check the SA returns for all affected employees to determine how much you can direct in relation to each employee for each year. However where you are considering directions involving large numbers of employees the changes to Regulations 72E and F explained in COG915260 allow you to check a representative sample of employees SA records and extrapolate the amount of tax which can be set off against the employer’s liability.

You will only be able to do this if you are able to identify a statistically valid representative sample which you are satisfied will provide an outcome within acceptable confidence levels and margin of error. COG915262 provides further guidance on sampling and extrapolation.

How to determine the amount of tax to include in a direction

You should use your best judgement when considering how much tax to include in a direction because the underpaid PAYE will not necessarily equate to the amount of tax self assessed or paid by the employee if the return includes other income or deductions for expenses.

  • (This content has been withheld because of exemptions in the Freedom of Information Act 2000)
  • Where it is clear the relevant payments are not the only income from self-employment, comparison of the relevant payment less the apportioned amount of expenses that have been allowed (do not include claims relating to capital items) with the figure of ‘profit from self-employment’ would arrive at how much of the total ‘Income Tax Charged’, if any, relates to other income.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

SPT Personal Tax International or High Net Worth Unit

Where the employee is an SPT Personal Tax International or High Net Worth (HNWU) case you must liaise with the SPT PTI or the HNWU owner to discuss the case and the entries on the SA return or POA position. Do not rely purely on reviewing the SA record of the individual in such cases.

Note: When considering a direction the PAYE due figures will not necessarily equate to the amount of tax self assessed or paid by the employee under SA. You must calculate how much tax to include in the direction.

Although the examples all show tax at BR you may consider accepting less than the full employer liability in accordance with COG908130 but only where it has been clearly established that the relevant earnings are the only earnings for the year in question.

If you consider a direction is appropriate you should

  • note the individual’s SA record (COG915290).

You will then need to decide whether the conditions for making a direction apply.

In cases of uncertainty or if you need advice you should

  • contact your nominated Authorising Team.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

  • (This content has been withheld because of exemptions in the Freedom of Information Act 2000)
  • (This content has been withheld because of exemptions in the Freedom of Information Act 2000)

If the Authorising Team is unable to provide the necessary advice they will refer the matter to the Single Point of Contact (SPOC) (see COG915305).