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HMRC internal manual

Employment Income Manual

PAYE: special types of payment: employee’s requirement to make good PAYE: meaning of making good: indemnity

Section 222 ITEPA 2003

In both bona fide commercial non-monetary reward arrangements (e.g. share based long-term incentive plans or a market value option agreement) and cases involving the implementation of a tax avoidance scheme, it is common to see rules that, in effect, require the employee to indemnify the employer for any taxes which become due as a result of the arrangements. In share incentive arrangements such rules may, for example, give the employer the right to withhold a number of shares from the award or to recoup the amount from payments of future salary.

It is often contended that the existence of such rules is sufficient to satisfy the making good requirements of section 222. Each case should be examined on its merits but, in most cases, it is likely that the effect of the rules will be sufficient to prevent a charge under section 222.


For convenience, this guidance uses the term ‘indemnity’. There is no magic in the word ‘indemnity’. The important point is that the terms agreed, however expressed, whether as a withholding provision or otherwise, create a bona fide contractual liability on the part of the employee to reimburse, or otherwise entitle the employer to recover, in full, an amount equivalent to the due amount.