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HMRC internal manual

PAYE Manual

PAYE operation: payments for PAYE purposes: doubts about whether payment counts for tax purposes

The meaning of payment, for tax purposes, is covered in the Employment Income Manual at EIM00500 onwards. Guidance can also be found in the Employer Further Guide to PAYE and NICs (booklet CWG2).

If the employer or employee has a genuine doubt and payment has not been made you should

  • Ask the employee to agree to tax being deducted, if they agree tell the employer that any overpayment will be repaid as soon as agreement is reached
  • If the employee objects instruct the employer to either exclude the disputed part of the payment from the gross pay and tax calculation OR use code NT where the whole of the payment is disputed
  • Send a full report to Personal Tax product & Process PAYE Technical team Shipley

If the payment is later found to be taxable

  • Tell the employer to deduct from the total payment
  • Or
  • With the employees agreement issue a non cumulative code to the employer to operate instead of NT
  • Ask the employer for a written statement of payments from which tax should have been deducted

If there is no doubt that liability arises, or an employee questions the deducted tax, tell the employee

  • That the employer must deduct tax
  • That the payment and tax will be included in their reconciliation at the end of the tax year
  • The customer is free to Self Assess and make a claim that the tax is overpaid because the payment was not taxable, but that HMRC may enquire into the return.