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HMRC internal manual

Compliance Operational Guidance

Alternative rights of recovery (PAYE directions): further action when a direction seems appropriate: investigating the PAYE failure

As part of your review of both RIS and self sourced cases, you must examine all available information to find out the full extent of PAYE/NIC failure involved. Care must be taken to ensure that

  • Regulation 72(5) Condition B and Regulation 81(4) Condition A or B factors (and, where appropriate, for 2004-05 onwards, the employees Class 1 NIC) are considered
  • failures for all years are investigated
  • in liquidation and cessation cases all the remuneration paid to the date of liquidation or cessation is considered
  • any other directors or ‘key employees’ (see COG931200) for whom under-deductions may exist are looked at
  • any other employers who may have failed to operate PAYE for the employees under review are looked at.

It is often advantageous to obtain an overall picture of the operation of PAYE on directors’ remuneration so that you can

  • establish the employer’s pattern of working
  • pinpoint how and when PAYE failure first arose
  • respond to any correspondence.

So you should consider starting your review of the PAYE position one or more years prior to the first year of reported failure.