Recovery from Employee
Every employer is required by the Income Tax (Pay As You Earn) Regulations 2003, reg. 68 to account for the correct amount of tax and NIC which should have been deducted from the earnings paid to his employees. Normally, if the employer fails to deduct the correct amount, he will nevertheless remain accountable to the collector of taxes for any amounts under-deducted. However, there are two instances in which the collector may direct that the under-deduction should be recovered from the employee:-
- if the collector is satisfied that the employer took reasonable care in the operation of PAYE and that the error was made in good faith, he may direct that the employee should make good the loss of tax. Such a direction – under reg. 72(3) – would absolve the employer from any further responsibility for the under-deduction of tax; and
- if HMRC are of the opinion that the employee knew that the employer had wilfully omitted to deduct tax from his earnings they may direct – under reg. 72(4) – that the tax be recovered from the employee rather than the employer. This regulation is normally only used in the case of employees of a company which they control.
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