PAYE92060 - Reconcile individual: posting P14 to individual record: revision of employer’s returns
Employers are responsible for the operation of PAYE and must deduct the correct amounts of PAYE tax due. This means that you should always seek to recover any PAYE tax from the employer in the first instance.
It is recognised however that the first time an under-deduction is brought to your attention may be by contact from an employee themselves. This may be by receipt of an informal PAYE calculation or a PAYE tax coding notice.
In all cases of under-deducted tax you should follow SPD 60 and the guidance at PAYE92066.
Regulation 72(5) Condition A
When under-deductions of PAYE tax occur, the PAYE Regulations allow the employer to make a request that the employee pays the tax. Regulation 72(5) Condition A enables HMRC (namely authorised officers within the DMB PAYE Errors Unit (PEU)) to consider issuing a Direction that an employer shall not pay the tax if fully 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
SPD 60 has full details of the actions that should be taken.
Overview of preparing P35 / P14 returns
Where an under-deduction occurs, HMRC must take action to ensure that its records reflect the correct legal position. Responsibility for preparing pro-forma returns rests as follows
- Personal Tax Operations - If the employer pays the tax in response to the OCA83 or OCA84 letter
- DMB - If the employer has asked for a direction and has been refused by PEU but does not appeal
Effect on cases
Unless there are other matters to be addressed you should reconcile the employee record following the instructions for a Notional Tax credit at PAYE93036 where a Direction is not issued because of an error. However, as the employee has not paid the tax under-deducted you should restrict the PAYE credit as necessary to prevent any repayment arising as a result of that credit. (Regulation 185(5) of the PAYE Regulations refers).
