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HMRC internal manual

Compliance Operational Guidance

From
HM Revenue & Customs
Updated
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Alternative rights of recovery (PAYE direction): further action when a direction seems appropriate: claw-back provisions apply

No payments made

Where the claw-back test indicates that the claw-back provisions should be applied and there were no PAYE payments that match amounts declared on the return

  • insert an asterisk after the appropriate form C500 ‘Tax’ figure
  • add a footnote to the column to indicate that the tax remains unpaid, for example
P14 amounts transmitted on P228
 
Pay
9 Tax
10  
  £

210,000

Footnote:*tax remains unpaid £
79,280.50*

 

  • enter the claw-back amount (£79,280.50) in column 19.

Payments made

When the claw-back provisions apply and any PAYE payments were made in respect of the return

  • allocate the payments in accordance with any instructions given by the employer, otherwise
  • take the payments into account using the following examples to decide what proportion of the paid tax should relate to the director’s tax.

The form P35 for the underpayment covers directors’ tax only

The underpayment can only relate to the directors.

  • Apportion the total tax paid between each director along the following lines.

Example

P35 only shows entries for two directors

   Tax   
     
John Smith £150,000 Total =
William Green £140,000 £290,000
Tax paid on account   £70,000

 

This would be apportioned as follows:

John Smith 5/9 x £70,000 = £38,888.89
   
William Green 4/9 x £70,000 = £31,111.11

 

The form P35 for the underpayment covers both employees and directors; payment made by the employer

The underpayment could relate to the employees and the directors.

  • Regard the total tax paid as being for the employees’ tax only.

If there is anything left.

  • Apportion this between the directors as in the first example above.

The form P35 for the underpayment covers both employees and directors; payment made by the liquidator

The underpayment could relate to the employees and the directors.

  • Apportion the total tax paid between the employees and the directors along the following lines.

Example

P35 shows entries totalling £380,000 tax
   
Employees’ tax £  90,000
John Smith’s tax £150,000
William Green’s tax £140,000
Tax paid on account £  60,000

 

This would be apportioned as follows

Employees 90/380 x 60,000 = £14,210.53
   
Directors 290/380 x 60,000 = £45,789.47  

·         Split the directors’ proportion of their tax payments as in the first example above.

Payments made – form C500 completion

The proportion of the employer’s PAYE underpayment that has been paid needs to be deducted from the potential amount of claw-back.

  • Show the appropriate amount in the form C500 footnote, for example where £15,000 tax is paid:
P14 amounts transmitted on P228
 
Pay
9 Tax
10  
  £
210,000 £

79,280.50*

Footnote

*£64,280.50 tax remains unpaid
  • Enter the claw-back amount (£64,280.50) in column 19.