PAYE90020 - taxpayer end of year: taxpayer underpayments: PAYE directions
If an employer fails to deduct the correct amount of PAYE
from earnings by reference to the code for use, the employer is
liable for the amount under-deducted unless HMRC makes a PAYE
direction.
Regulations 72(5) and 81(4) of the PAYE Regulations 2003
govern the making of directions. They may be made where
- The employer took reasonable care to comply with the Regulations, and the failure to deduct the correct amount was due to an error made in good faith (regulation 72(5) condition A - the ‘honest mistake’), or
- The taxpayer knew that the employer had wilfully failed to deduct the correct amount of PAYE (regulations 72(5) condition B and 81(4) condition A - the ‘deliberate failure’)
Broadly, an underpayment caused by the employer should be recovered from the employer in the first instance, not the taxpayer. However, a PAYE direction will be considered by HMRC if
- The employer asks to be relieved of the PAYE liability because of an ‘honest mistake’, or
- The employer cannot pay the liability (by reason of insolvency, ceased trading and so on) and the taxpayer was actively involved in a ‘deliberate failure’ case
Underpayments discovered at end of year are more likely to be
subject to ‘honest mistake’ directions, provided of
course that the regulatory tests are actually met by the employers.
PAYE directions are made centrally by authorised officers
associated with
- The PAYE Errors Unit, Shipley (‘honest mistake’ cases)
- Six PAYE Direction Units in geographical locations (‘deliberate failure’ cases)
Further information is available about ‘honest mistakes’ in the following subjects
