PAYE on retrospective notional payments

Section 94 of Finance Act 2006 provides the rules for applying PAYE to notional payments of employment income where the income tax liability has been applied retrospectively. Income tax liability has been applied retrospectively to avoidance payments involving employment-related securities by the provisions in Schedule 2, Finance (No.2) Act 2005 and Section 92 of Finance Act 2006.

In future when a Finance Act provision applies retrospectively the notional payment is treated as made on the date the Act receives Royal Assent and PAYE is to be applied following the rules in Section 94 of Finance Act 2006.

For avoidance payments caught by the provisions in Section 92 of Finance Act 2006 the date when the notional payment is treated as made is to be set by regulations presently being drafted by HMRC. The intention is to lay the regulations relating to the collection of retrospective tax simultaneously with those relating to the collection of retrospective National Insurance contributions. The draft NICs regulations have been published for consultation. As these are subject to the Affirmative Resolution Parliamentary procedure, the earliest both sets of regulations can come into force will not be until early 2007.

The date the PAYE regulations are laid and come into force will trigger the PAYE tax period as outlined in Section 94 of Finance Act 2006 within which PAYE has to be remitted. It will also trigger the commencement of the 90 day period in section 222 (payments by employer on account of tax where deduction not possible) of ITEPA.