Where there is an agreement to make free of tax payments to
employees, the employer has to deduct tax from the grossed-up
amount of the remuneration (see
EIM07700).
It sometimes happens however that the employer simply fails
to deduct tax under PAYE from remuneration. If this is deemed to be
the employer's fault, the tax will normally be recovered by way of
a determination under Regulation 80 of Statutory Instrument
2003/2682.
The tax collected under Regulation 80 cannot be charged on
the employee as earnings from the employment under Section 62 ITEPA
2003 as the employer is not discharging a debt of the employee (see
EIM00580). This is because the
obligation to account for PAYE tax falls on the employer. Equally
it is not easy to show that in failing to deduct tax an employer
has "provided any benefit" on which directors or employees could be
assessed under Part 3 Chapter 10 ITEPA 2003.
In practice the failure to deduct tax from remuneration
nearly always occurs in respect of certain directors. So special
legislation was introduced to treat the amount of any tax paid by
someone other than the director as a benefit chargeable on the
director.
For details of this special charge see:
EIM21791 – to which directors do
the special rules apply and when does a charge arise?
EIM21792 - the amount of the charge
under the special rules and the year for which it is chargeable.
See
EIM11800 onwards where the failure to
deduct tax is in respect of a readily convertible asset.
