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HMRC internal manual

Compliance Operational Guidance

HM Revenue & Customs
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Alternative rights of recovery (PAYE directions): general: regulation 72(5) condition B - provisions

Regulation 72 of the Income Tax (Pay As You Earn) Regulations 2003 (SI 2003/2682) provides

“Recovery from employee of tax not deducted by employer


  1. This regulation applies if

a.     it appears to HMRC that the deductible amount exceeds the amount actually deducted, and

b.     Condition A or B is met

2.     In this regulation—

“the deductible amount” is the amount which an employer was liable to deduct from relevant payments made to an employee in a tax period;

“the amount actually deducted” is the amount actually deducted by the employer from relevant payments made to that employee during that tax period;

“the excess” means the amount by which the deductible amount exceeds the amount actually deducted.

3.     Condition A is that the employer satisfies HMRC-

a.     that the employer took reasonable care to comply with these Regulations, and

b.     that the failure to deduct the excess was due to an error made in good faith

4.     Condition B is that HMRC is of the opinion that the employee has received relevant payments knowing that the employer wilfully failed to deduct the amount of tax which should have been deducted from those payments.

5.     HMRC may direct that the employer is not liable to pay the excess to HMRC.

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

7.     If condition B is met, tax payable by an employee as a result of a direction carries interest, as if it were unpaid tax due from an employer, in accordance with regulation 82 (interest on tax overdue).

8.     The tax payable carries interest from the reckonable date until whichever is the earlier of

a.  the date on which payment is made, or

b.     the date (if any) immediately before the date on which it begins to carry interest under section 86 of TMA.”