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HMRC internal manual

Enquiry Manual

HM Revenue & Customs
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Close Companies: Settlement: Employment Income Route: Introduction

Employers are responsible for the correct operation of PAYE and are normally held responsible for any failures. However, if the employer cannot pay what is due (for example because of insolvency) and an under-deduction relates to a particular employee or director, then HMRC may relieve the employer of the liability and transfer it to the employee or director.

The liability is transferred from the employer to the employee, or director, by making a direction under Regulation 72(5) Condition B (or if Regulation 80 determinations have been made, under Regulation 81).

Approval for pursuing the employment income route is required from contact link except where

  • you have in place “alternative” CTA10/S455 and employment income assessments made in accordance with the final paragraph of EM8605 that the tribunal can determine, or
  • there is clear evidence that extractions were in the nature of remuneration.

Often approval can be given over the telephone with sight of the papers only requested where necessary.

However, before any necessary approval is sought, and depending on the expected yield, you should make advance informal contact with Specialist Investigations, Insolvency & Securities (SI, I&S) or Local Compliance (I&PB) Specialist Employer Compliance see LC memo 14/11 to

  • to ascertain whether they would be prepared to consider pursuing a direction under Regulation 72, and
  • obtain, if necessary, further procedural advice.

Often a formal direction will be required against the directors or employees of an insolvent company or one that simply ceases EM8730. As recovery will be from the director(s), or employee(s), the extent to which funds are available to them needs to be considered.

At the same time you should also consider NICs liability

  • after 05/04/99 for personal liability notices on culpable officers (NIM12201) and
  • after 05/04/2004 under Reg 86 of the Social Security (Contributions) Regulations 2001, if there are unpaid primary Class 1 NICs due to negligence on the part of the employee (NIM12125).

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

Before making any assessments in this scenario, you should contact Local Compliance (I&PB) Specialist Employer Compliance to check whether they would be prepared to consider pursuing a direction.

You should keep the taxpayer informed about your intentions and the process by which they will be carried out- see INS8311.