ECH17045 - Directors: Failure to Operate PAYE - Potential Benefit Implication of Section 223 ITEPA 2003

When the employer pays tax which they failed to deduct from a directors' employment income ( ECH17035), a benefit will normally arise unless the director makes good the tax to the company.

You should

• familiarise yourself with EIM21790-EIM21792 and
• discuss with employers this potential benefit when making settlements involving directors.

If the employer and/or director agrees to make good the tax either by

• a personal payment, or
• a loan account debit

then no benefit will arise.

If the director and/or employer gives no indication of the intention or is vague in the response, you should

• invite the employer to settle the tax on the benefit on a grossed up basis, including NIC on the tax borne see practical example
  
  
• • (This text has been withheld because of exemptions in the Freedom of Information Act 2000)

If the employer declines to settle, you should

• advise the employer to return the benefit on the form P11D (for the year in which the S223 charge arises) for the director, and
• notify the directors processing office to expect such a return.

You should claim the resultant yield as identified as part of the compliance check ( ECH22506).

See also ECH17040.