EIM43662 - Globally mobile employees: Overseas Workday Relief: pre-6 April 2025 tax years: When is PAYE tax paid remitted
When PAYE tax deducted from an employee’s earnings is paid to HMRC, if any of this tax was deducted from section 26 earnings, this might result in a remittance to the UK.
For there to be a remittance to the UK, in most cases, condition A in section 809L ITA 2007 must be met (see RDRM33100). Where PAYE tax is deducted and paid over to HMRC, this is money “brought to, or received in or used in,” the UK. However, it is then necessary to consider whether this was “by or for the benefit of a relevant person”.
The PAYE tax was deducted and paid to HMRC by the employer, so that it was not brought to, received or used in the UK by the employee (or another relevant person). It is then necessary to consider whether it was brought to, received or used in the UK for the benefit of the employee.
In McCarthy v McCarthy Stone Plc [2007] EWCA Civ 664 , the Chancellor of the High Court in the Court of Appeal agreed with the conclusions of Peter Smith J in the High Court that “the employer when deducting and accounting to the Revenue is deducting and accounting on the employee's behalf for the Income Tax for which of course he is primarily liable by virtue of his emoluments.” Where an employer pays PAYE tax they have “paid the tax on[the employee’s] behalf which he would otherwise be liable to pay. [The employee] has received that benefit also because he has when his assessment return is sent in and the tax calculated, been given the benefit of that deduction and payment made by the [Employer]”.
As a result, both the High Court and Court of Appeal found that “the payment by the Company...was made by the Company to the Revenue...on behalf of and to that extent in discharge of the liability of the Claimant to the Revenue for the like amounts”.
Any PAYE tax paid which reduces the amount of income tax that otherwise would, or could, have been payable directly by the employee would therefore provide a benefit to the employee for the purposes of section 809L Condition A, at the time it was paid to HMRC.
Any PAYE tax paid which exceeds the employee’s income tax liability for the tax year and so is repayable, does not provide a benefit to the employee for the purposes of section 809L Condition A at the time it was paid to HMRC.
While in most cases it will not be possible to ascertain the amount of PAYE tax repayable at the time it is paid by the employer, this does not affect the time at which any remittance occurred.
Where any PAYE tax has been deducted from section 26 earnings, any repayment of tax following submission of the employee’s ITSA return can be treated as being made from these earnings in priority to any tax deducted from section 15 earnings. However, this means that if any section 26 earnings repaid is paid into a UK bank account, it would result in a remittance of these amounts to the UK at the time it is repaid by HMRC.