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HMRC internal manual

Debt Management and Banking Manual

Debt and return pursuit: PAYE: introduction

A succession is where the ownership of a business changes from one legal entity to another, and the new owner takes responsibility for the pay records of the old employer but not the responsibility for making PAYE payments for the period before the transfer of ownership.

A succession can only take place if the old and new owners agree to it. If the old owner issues forms P45 to its employees and closes down the existing PAYE scheme, then HMRC must treat this as a cessation (DMBM522500).

Likewise, if the new owner continues an existing business but does not want to assume responsibility for the acquired business for the period up to the date of the change then no succession has taken place and you follow the cessation procedure.

With any change of ownership constituting a proper succession the

New owner

  • has a new scheme opened
  • pays tax and Class 1 NIC for the period from the date they took over (succession date).
  • completes and submits employer returns for the whole deduction year at the end of year.

Previous owner

  • pays tax and Class 1 NIC for the period up to the date the new owner took over (succession date).
  • does not give forms P45 to employees who are taken on by the new owner.
  • does not complete any form P35 or P14 returns for the tax year in which the succession took place
  • has their scheme closed.

Action on receipt

Where you establish that a succession has taken place you need to take action depending on the type of scheme involved-

A PAYE only scheme may be treated as a succession.

A PSC scheme can have the PAYE part treated as a succession while the contractor part must be treated as a cessation (DMBM524370).

A Contractor only (XP) scheme cannot be subject to succession. The old owner is treated as a cessation (DMBM524370) and the new owner as a new contractor.

This is a complex area of work and you will find more in depth explanation in the PAYE Manual (PAYE30045).