Reconcile individual: posting EOY information to individual records: revision of employer’s returns
Employers are responsible for the operation of PAYE and must deduct and account for the correct amounts of PAYE tax due. This means that you should always seek to recover any PAYE tax from the employer in the first instance.
It is recognised however that the first time an under-deduction is brought to your attention may be by contact from an employee themselves. This may be by receipt of an informal PAYE calculation or a PAYE tax coding notice.
In all cases of under-deducted tax you should follow action guide tax40107.
Regulation 72(5) Condition A
When under-deductions of PAYE tax occur, the PAYE Regulations allow the employer to make a request that the employee pays the tax. Regulation 72(5) Condition A enables HMRC (namely authorised officers within the DMB PAYE Errors Unit (PEU)) to consider issuing a Direction that an employer shall not pay the tax if fully satisfied that
- The employer took reasonable care to comply with the Regulations
- The failure to deduct the correct amount was due to an error made in good faith
Action guide tax40107 has full details of the actions that should be taken by PT Operations prior to submission to PEU.
The PEU guidance for considering Directions is contained within DMBM522800.
P35 amendments or Earlier Year Updates (EYUs)
Where an under-deduction occurs, HMRC must ensure that the employer corrects their return(s) to reflect the correct legal position.
Payment of the tax by the employer will then balance against the amended return.
If the employer fails to amend their return(s) then HMRC should take action to recover the tax by issuing Regulation 80 determinations. Instructions are at PAYE54000 onwards.
Effect on employees records
If an amended return or EYU has not been received to account for underdeducted tax, then you will have to reconcile the employee record following the instructions for a Notional Tax credit at PAYE93036 where the PAYE remains the employers liability.
However, as the employee has not paid the tax under-deducted you should restrict the PAYE credit as necessary to prevent any repayment arising as a result of that credit. (Regulation 185(5) of the PAYE Regulations refers).
Where a Direction has been authorised then the employee does not get any credit for tax which should have been deducted by the employer.