Up until Royal Assent the law as it stood previously was in full
force. After Royal Assent, the wider application of the Part 7
rules has retrospective effect from 6 April 2008.
No PAYE or NIC responsibilities (other than reporting
requirements on Form 42) apply to chargeable events that occur in
the period between 6 April 2008 and Royal Assent if the law as it
stood prior to Royal Assent does not impose them. After Royal
Assent, the employer is not required to revisit events prior to
that date, even though the new law has retrospective effect from 6
April 2008.
In some circumstances employers may have operated PAYE and
NICs in respect of awards of securities or securities options that
occurred between 6 April 2008 and Royal Assent that, following
Royal Assent, should not have given rise to such charges. So, for
example, where R/NOR employees acquired securities options or
securities that were forfeitable within 5 years, since Chapters 5
and 2 of Part 7 of ITEPA did not apply, the exemptions in those
Chapters from a money’s worth general earnings charge
similarly did not apply. It might therefore be the case that an
employer faced PAYE and NICs obligations on the award of an option
or securities which, following Royal Assent, were removed, as the
awards were exempt from an income tax charge by virtue of the rules
of Part 7.
So, an employer might deduct PAYE tax on the award of, say
forfeitable securities, in accordance with the old rules up to
Royal Assent and, following the retrospective application of the
new rules back to 6 April 2008, find that the income tax and NIC
liability attached to that award has now been removed. In these
circumstances the employer should make careful amendment of the pay
record to remove the ‘non taxable’ payment. In
the next tax period(s) the tax will then be repaid to the
individual by an increase in their Net Pay per the tax tables and
their tax code. A note should be made for auditing purposes.
If the employee has left the employment then the employer
should not seek to re-issue a P45, but may want to make the
ex-employee aware that tax was deducted on a non taxable
figure. The employer should not repay the tax to the
ex-employee. The ex- employee should then make a claim at a
later point upon presentation of P45 to HMRC.
