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HMRC internal manual

Employment Income Manual

HM Revenue & Customs
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PAYE: special types of payment: employee fails to make good PAYE: meaning of make good


An amount may be “made good” for the purpose of section 222 ITEPA by the transfer of money or money’s worth from the employee to the employer. How that is achieved is a matter between the employee and employer and not a matter for HMRC. The most straightforward manner will be for the employee to make a monetary payment (cash/cheque/bank transfer etc).

Usually an employee awarded non-cash remuneration (for example, gold coins) converts the assets into cash within days of the award and there is no practical reason why the employee should not make good the PAYE due to the employer within 90 days. However, the transfer of value may need to be achieved in other ways. In some instances, especially awards of shares where there are restrictions on sale, the employee may not be able to realise cash from the assets in time to make good the PAYE due to the employer within 90 days. This does not alter the employee’s obligation under Section 222 ITEPA 2003 to make good the PAYE tax due within 90 days of the award.

One possibility is entering into a loan agreement. If an employee enters into a loan agreement with the employer within the time allowed for making good then there will be no charge to tax under section 222 ITEPA. If the beneficial loan legislation applies to that loan then the amounts chargeable should be declared accordingly.

Other possibilities include any arrangements for sale, assignment, charge or any other dealing which is capable of being valued. Any arrangement by which the employer is given rights that may be measured in financial terms will constitute making good.

Indemnity contracts and escrow accounts

Some employers contest whether PAYE is due on awards of non-cash remuneration and consequently may not require their employees to reimburse the PAYE tax within 90 days ofthe award. However, in order to avoid a potential Section 222 charge arising if it is subsequently determined that the employer should have operated PAYE, employers may arrange for employees to place the PAYE due in an escrow account or sign an indemnity contract.

These arrangements can take various forms but they usually ensure that the employee will reimburse the employer the PAYE due if a decision is reached at a later date that PAYE was due on the payment. These arrangements do not meet the definition of make good because there is no reimbursement by employee to employer within the 90-day limit.

Credit to employee loan account

Employees, especially directors, may possess a loan account with their employer.

Some employers argue that an employee has met the obligation to make good the PAYE due on a notional payment because the loan account balance was in credit within 90 days of the notional payment, or because the gross proceeds from sale of the readily convertible asset were credited to the loan account within 90 days.

Neither of these circumstances meets the requirement to make good to the employer within the 90-day limit, unless there was a corresponding transfer from the loan account to the employer’s tax, PAYE or equivalent account. If the money is merely held in the loan account it is available for the employee to draw on at any time and it has not been made good to the employer.