Personal liability for PAYE

By Tolley in association with Vince Ashall
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The following Employment Tax guidance note by Tolley in association with Vince Ashall provides comprehensive and up to date tax information covering:

  • Personal liability for PAYE
  • Employer fails to remit tax
  • Managed Service Company Debt

Under the Taxes Management Act 1970, an individual is under a general legal obligation to inform HMRC of changes in their personal circumstances that may affect their tax status or the amount of tax that is due. The introduction of Self-Assessment under the Finance Acts of 1994 and 1995 resulted in employees having to take responsibility for their PAYE affairs as well as their other financial circumstances which may give rise to an additional income tax liability (or claim for a refund) or capital gains tax, etc.

For employees, their tax situation is usually straightforward and the correct amount of income tax is deducted via the PAYE system. However, there may be circumstances where too little tax has been deducted by the employer from the employee’s pay. If certain criteria are met, HMRC may decide that the employee is responsible for paying the under-deducted tax.

A situation where too little tax has been deducted by the employer occurs with regards to weekly paid employees who have an additional week’s pay at the end of the tax year - referred to as “Week 53” (or “Week 54” for fortnightly paid employees and “Week 56” for four weekly paid employees). The employer has correctly followed the procedures for this extra pay period and the employee has received an additional week’s pay adjustment. Under self assessment, only the statutory annual amount is allowed in the calculation and consequently the underpaid tax is automatically recovered.

Where a Self-Assessment return is not completed, any underpaid tax is calculated and the employee informed via the form P800 procedure. HMRC are using this process more frequently than in the past, possibly as a consequence of the introduction of RTI.

The wording of The Income Tax (Pay as You Earn) Regulations 2003 is such that an employer is responsible not only for the tax actually deducted from the employee’s pay, but

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