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HMRC internal manual

Self Assessment Manual

Transfer of liability: regulations 72/81 and SA: regulation 72(5) condition B direction

A Regulation 72(5) condition B direction is considered by a PAYE Directions Unit (PDU). Where a direction is made it enables the Revenue to recover an under-deduction of tax from the employee where the employer’s failure appears to be wilful, and the employee was aware of the situation. By virtue of Regulation 72(7) & (8) interest is payable by the employee under Regulation 82 from 19 April following the end of the relevant year until the earlier of

  • The date of payment, or
  • The date immediately preceding that on which Section 86 interest becomes chargeableWhere the PDU takes the view that the employee received his earnings knowing that the failure was wilful, a Regulation 72(5) condition B direction may be considered if recovery cannot be effected from the employer.

The PDU will advise the Director / employee that a Regulation 72(5) condition B direction is being considered, and will invite any representation that they wish to be taken into account.

There is no time limit for the granting of a direction. The employee has a right of appeal against the direction once it is made.

The PDU decision will be notified in writing to

  • The Employers Section in the office with processing responsibility
  • The employee
  • Any acting agentWhen a Regulation 72(5) condition B direction is made, any credit given in the calculation of liability for the individual taxpayer must be restricted to the tax actually suffered by the employee, or any amount specified by the PDU as being paid by the employer.

Practical use of Regulation 72(5) condition B

  • In practice Regulation 72(5) condition B is mainly used in Director cases and where there is little or no prospect of recovering the tax from the company. Prospects of recovery are considered poor where, for example, the company is insolvent or has ceased trading for whatever reasonIf the company is still in existence and still trading, Regulation 72(5) condition B is not usually considered.