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HMRC internal manual

Employment Status Manual

HM Revenue & Customs
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Procedural aspects of status cases: formal procedure in disputed cases - use of Regulation 72 Condition A SI 2003 No. 2682

There are circumstances DMB PAYE Errors Unit (PEU) can direct that tax which an employer has failed to deduct under PAYE shall be recovered from the employee instead of the employer. In order to make such a direction, the PEU r must be satisfied:

  • that the employer took reasonable care to comply with the PAYE Regulations
  • the failure to operate PAYE was due to an error made in good faith (Regulation 72 Condition A, SI 2003 No.2682).

You may come across employment status disputes where you think that the employer has a good case for consideration under Regulation 72 Condition A. You may find that the worker’s employment status is on the borderline between employment and self-employment, and that the alleged employer had reasonable grounds for believing the worker to be self-employed.

If you think the case is one where PEU should consider a direction or if the employer asks to be relieved of the liability to pay the tax underdeducted, do not make a Regulation 80 determination on the alleged employer. The PEU cannot give a Regulation 72 Condition A direction once a Regulation 80 determination has been made (Regulation 80(3)). 

Instead, tell the ‘employer’ that:

  • A formal direction will be considered if the employer admits PAYE debt is due and agrees future payments will be subjected to PAYE deductions.
  • An informal opinion about the prospects of a direction will be given if the employer does not admit the PAYE debt is owing, but agrees future payments in the same circumstances will be subject to PAYE. A Refusal Notice will not be issued.

Having been given the advice set out above, if the alleged employer does send representations to you, pass them with your papers to the PEU for consideration PEU will advise you and/or the ‘employer’ in due course of the decision taken.

Where no direction is given, PEU will refrain from pursuit of the underdeduction and return the papers to you to continue your enquiries.

Points that you should note in connection with directions under Regulation 72 Condition A are:

  • Only the PEU decides whether or not to give a direction.
  • You should not lead the alleged employer to assume that a direction will be given
  • An employer may request HMRC to make a direction under regulation 72(5). Where HMRC refuses the request, the employer may appeal against the refusal notice
  • The Status Officer must not be involved in the Regulation 72 Condition A decision making process
  • If no representations are made, you can proceed with Regulation 80 determinations in the normal way
  • If the PEU makes a Regulation 72 Condition A direction the tax in dispute can be recovered from the employee via Self Assessment procedures or by means of a coding restriction.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)