These paragraphs are not intended to be a detailed review of the PAYE regulations. The object is simply to provide an outline of the more important regulations which the adviser needs to know when advising in an employer compliance review.

The main thrust of the regulations is to require anyone who makes a payment which is chargeable to income tax under ITEPA 2003 to deduct tax in accordance with those regulations, and to retain and produce records for inspection. This applies to all employers, including overseas employers who have a tax presence in the UK, even if they are not resident here. For example, a non-resident employer operating in the UK through a branch or agency would be obliged to operate PAYE in respect of earnings paid to his employees in the UK. The effect of the regulations is to make it unnecessary in the great majority of cases for HMRC to make assessments to collect tax from people in employment. The tax is legally due without the need for an assessment and the responsibility for accounting for it to the collector is placed on the employer.

In Booth v Mirror Group Newspapers plc [1992] BTC 455 the High Court held that a company which made a payment to a person to induce him to enter into a contract of employment with a third party, which it was accepted was an emolument of the resulting employment, was obliged to deduct tax from the payment. Hobhouse J said that there was no indication in the statute or the PAYE regulations that any class of taxable emoluments should escape the PAYE scheme. The payments were within the terms of (what is now) reg. 46 of the 2003 regulations (SI 2003/2682), the definition of ‘employer’ being the person who paid an emolument.

The statutory authority for HMRC to make the regulations is ITEPA 2003, s. 684. This enables HMRC to make regulations by way of statutory instruments to deal with the administration of PAYE and in particular:

  • the deduction of tax at source when making a payment which is assessable under ITEPA 2003;
  • the production to, and inspection by, an officer of the Board of wages sheets and other documents and records for the purpose of satisfying himself that tax has been deducted, repaid and accounted for in accordance with the regulations;
  • the collection and recovery of tax which has not been deducted or otherwise recovered during the year;
  • the payment of interest on sums due to the Board which are not paid by the due date, determining the date from which the interest is to be calculated, and the repayment or remission of such interest;
  • the payment of interest on sums due from the Board and the date from which that interest should be calculated;
  • the assessment of tax chargeable under ITEPA 2003; and
  • the appeals procedure to deal with matters arising under the regulations, which would not otherwise be the subject of an appeal.

The regulations made under the authority of ITEPA 2003, s. 684 have been consolidated as the Income Tax (Pay As You Earn) Regulations 2003 (SI 2003/2682). The Social Security Contributions and Benefits Act 1992, Sch. 1, para. 6 enables regulations to be made under which the PAYE system may be used to collect Class 1 NIC.

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