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HMRC internal manual

Debt Management and Banking Manual

Debt and return pursuit: PAYE: E-payment: legislation and interpretation: introduction

Mandatory Electronic Payment For the tax years 2004-05 onwards the Mandatory Electronic Payment (MEP) legislation in Income Tax (Employments) (Amendment) Regulations 2003 (S.I. 2003/2682), later amended by The Income Tax (Pay As You Earn) (Amendment) Regulations 2010, requires large employers to pay their monthly PAYE/ NIC deductions in full and on time by an approved electronic method. The purpose of the legislation is to encourage compliance from the largest employers.

By PAYE/ NIC deductions we mean PAYE / NIC due from employees plus subcontractor and student loan deductions, less tax credits, less any payments of SSP/SMP/SAP and SPP, less any CIS25 credits.

For a further explanation of what may be due from an employer see also DMBM520935.

Surcharge: applicable to tax years 2004-05 to 2009-10 only

Legislation covering surcharge


  • Regulation 203 Income Tax (Pay As You Earn) Regulations 2003

For subcontractors deductions

  • Regulation 52 Income Tax (Sub-contractors in the Construction Industry) (Amendment) Regulations 2004


  • Regulation 90K Social Security (Contributions, Categorisation of Earners and Intermediaries) (Amendment) Regulations 2004 and

For Student Loan Deductions

  • Regulation 52B Education (Student Loans) (Repayment) (Amendment) Regulations 2004.

The regulations aim to encourage compliance by ensuring prompt payment from the largest employers.

A challenge to the regulations in 2005 revealed there is no over-arching legislation that brings the separate regulations detailed above together. As a result the surcharge is made up from separate surcharges charged under each of the four regulations.

Note: Assurances have been given to various representative bodies that underpayments for previous years identified in the course of employer compliance reviews will not be treated as defaults. The employer should not be penalised twice for the same offence i.e. default and a penalty on the back of the employer compliance recovery.

Changes to e-payment legislation from 6 April 2010

The late payment penalty regime introduced by Schedule 56 Finance Act 2009 applies from 6 April 2010 and to tax years 2010-11 onwards. It replaced the surcharge element of MEP legislation so no surcharges will be raised on late payments for any tax year after 2009-10. It also removed the requirement to issue segmentation notices notifying an employer of their segmentation type. The changes can be found in DMBM523500.

The Income Tax (Pay As You Earn) (Amendment) Regulations 2010

All employers who have 250 or more employees on 31st October are classed as ‘large employers’. They are required to pay their monthly PAYE/ NIC deductions in full and on time by an approved electronic method for the following tax year, even though they are no longer issued with a notice declaring them to be a large employer. Therefore the onus is on them to recognise they are a large employer and that they are required to pay electronically.