PAYE: special types of payment: employee’s requirement to make good PAYE: meaning of 'makes good' and 'due amount'
Section 222(1)(a)(b) and (c) ITEPA 2003
Section 222(1)(a) and (b) involve statutory provisions applicable to the employer rather than the employee. If those two requirements are met, in order to ensure that there can be no charge to tax under section 222, the employee needs to take action to prevent the requirement at section 222(1)(c) being met. There are a number of concepts within that subsection which need to be considered.
Section 222(1)(c) says that section 222 applies if the employee does not, within the time allowed, make good (see EIM11964) the due amount (see EIM11972) to the employer (see EIM11978).
For a notional payment treated as made on a date after 5 April 2014, the time allowed is the period ending 90 days after the end of the tax year in which the relevant date falls.
For a notional payment treated as made on a date before 6 April 2014, the time allowed is the period ending 90 days after the relevant date.
In relation to section 222, ‘the relevant date’ ordinarily means the date on which the employer is treated as making the notional payment (see EIM11976).
Making Good and the Due Amount
There are 2 concepts here but there can be a link between them in some cases.
The first important point to note is that it is the due amount which the employee is required to make good. As explained in EIM11974 the due amount is the amount of tax which the employer was liable to account for in respect of the notional payment under the PAYE legislation but was unable to deduct from actual payments to the employee. The due amount may not be the full amount of tax due on the notional payment. The employer is required to consider whether the employee received any actual payments of salary or wages in the same pay period as the notional payment and make deductions from those payments. It does not matter whether the employer actually recovered tax by deduction from another payment (see the example at EIM11968).
Employee makes good an amount that is less than the Due Amount
Section 222(1)(c) says that section 222 applies if the employee does not make good the due amount to the employer within the time allowed. If section 222 applies, subsection (2) says that the due amount is to be treated as earnings from the employment. Unlike some other parts of the legislation (for example the benefits code) there is no provision for allowance to be made for any part made good. If an amount is made good within the time allowed but that is less than the due amount, the requirement at section 222(1)(c) will still be met and the charge to tax under section 222 will still arise. The amount that is treated as earnings from the employment and so is chargeable to tax as employment income remains equal to the due amount.