Notional payments not made good—the section 222 charge
Notional payments not made good—the section 222 charge

The following Tax guidance note provides comprehensive and up to date legal information covering:

  • Notional payments not made good—the section 222 charge
  • What is a notional payment?
  • Is the employer required to account for PAYE on the notional payment?
  • How does the employer account for PAYE on the notional payment?
  • Obligation of employee or director—meaning of make good
  • The relevant date—implications of Manning
  • The section 222 charge
  • NICs implications of notional payments not made good
  • Example

The income tax charges associated with employment-related securities and securities options typically arise upon acquisition of securities, or because an amount of employment income is deemed to arise upon a subsequent chargeable event, rather than as a result of a cash payment. Therefore often the employer cannot deduct pay as you earn (PAYE) in the normal way. There are special rules requiring an employer to account for PAYE in relation to such notional payments. An additional, penal, income tax charge is imposed upon the employee (or director), and (employer and employee) Class 1 NICs arise, to the extent such PAYE amount is not made good to the employer.

Under section 222 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003), where an employer:

  1. makes a notional payment to an employee or director

  2. in respect of which the employer is required to account to HMRC for an amount of income tax by way of PAYE, and

  3. which amount the employer is unable to deduct from any payments actually made to that employee or director within the relevant period (because such payments are of insufficient value)

the employee or director must make good the amount of income tax to the employer. Until 5 April 2014, the income tax had to be made good by the employee or director within 90 days of the