PAYE92060 - taxpayer end of year: posting P14 to taxpayer record: revision of employer’s returns

An employer is responsible for the correct operation of PAYE and is liable for the tax due. For SA and informal calculation purposes the employee is entitled under regulation 185(5) to a credit for the PAYE tax the employer should, but may not have deducted. This ensures that any under-deducted tax is not recovered from the taxpayer in the first instance but is pursued from the employer.

From time to time under-deductions of PAYE occur and the Regulations allow the employer to be relieved from paying the under-deduction in certain circumstances. It is the responsibility of the Area that holds the employer’s record to

• Identify any apparent PAYE failure by its employers, and
• Take the appropriate action regarding the tax unpaid. This will involve asking the employer for an explanation and payment whilst being aware that the employer might respond by asking HMRC to make a PAYE direction under regulation 72(5) condition A

Regulation 72(5) condition A enables HMRC (namely authorised officers within the PAYE Errors Unit) to direct that an employer shall not bear the tax that the employer failed to deduct, if satisfied that

• 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

If a direction is made regulation 185(5) is disapplied, the taxpayer is no longer entitled to the PAYE credit and the taxpayer is exposed to, and has to pay, the resulting underpayment.

The PAYE Errors Unit will use discretion in making this decision. Areas may occasionally be asked whether they have any information about the employer that may help in making this decision.

See the Action Guide at 92066 for details of the action that is taken in Service teams within Areas.

Overview of preparing P35 / P14 returns

Where an under-deduction occurs HMRC must take appropriate action to ensure that its records reflect the correct legal position. Broadly, responsibility for preparing amended returns rests as follows

• Area - where the employer acknowledges the underpayment in response to the Area, pays it, and does not ask for a direction
• PEU - where the employer has asked for a direction

Effect on open cases

Unless an employer asks for a direction upon being notified of an under-deduction, the taxpayer may usually be credited with the PAYE tax that ought to have been deducted. Unless there are other matters to be addressed the open case may then be closed in the usual way. But note that, because the taxpayer has not suffered the tax under-deducted the PAYE credit should be restricted as necessary to prevent any repayment arising as a result of that credit. Regulation 185(5) refers.