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 can only be authorised  by a PAYE Directions Team.

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) and (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 chargeable

Where the PAYE Directions Team takes the view that the employee received his earnings knowing that the failure was wilful, a Regulation 72(5) condition B direction may be authorised  if recovery cannot be effected from the employer.

When considering a Regulation 72(5) condition B direction, you should made advance contact with a PAYE Directions Team (See COG915200).

When the PAYE Directions Team provides authorization to use Regulation 72(5) condition B, the  decision will be notified in writing to

  • the employee
  • any acting agent

This notification provides the employee with the right of appeal against the decision once it is authorised.

There is no time limit for the granting of a direction.

When 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 PAYE Directions Team 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 reason.

If the company is still in existence and still trading, Regulation 72(5) condition B is not usually considered.