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Where Taxpayers and Advisers Meet
PAYE rules to be clarified following Demibourne case
20/03/2008, by Sarah Laing, Tax News - Business Tax
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HMRC have published amended regulations to deal with issues highlighted in the Demibourne case.

The Special Commissioner’s decision in the case of Demibourne Ltd v Revenue and Customs Commissioners highlighted a number of tax issues for employers and their employees which can arise as a consequence of an employer’s failure to operate PAYE (Pay As You Earn). These issues relate to a situation where income tax has been paid in relation to what is PAYE income, but by the wrong legal person (ie the employee rather than the employer).

The Demibourne case confirmed that where an employment relationship exists, the employer is responsible for deducting tax from payments made to the employee in accordance with the PAYE Regulations. Under the law as it stands, HMRC do not have the discretion to choose whether to collect tax from the employer or the employee. This can lead to a situation where HMRC are obliged to seek recovery of tax from the employer in relation to income on which tax has previously been paid by (or on behalf of) the employee under Self Assessment (SA).

Following the decision given in this case, HMRC engaged with the main bodies of the tax and accountancy profession and business in an attempt to find the right solution. Amended regulations (SI 2008/782) have subsequently been issued and will take effect from 6 April 2008.

SI 2008/782 amends the Income Tax (Pay As You Earn) Regulations 2003 (The PAYE Regulations) to extend the limited circumstances where HMRC may make a direction to transfer an employer’s PAYE liability to the employee who received the relevant payments from which tax has been under deducted. Broadly, the new power to make a direction will apply where an employer has failed to deduct or account for tax in relation to a relevant payment (payments subject to PAYE as defined in Regulation 4 of the PAYE Regulations), while tax on that payment has been included in the employee’s SA, or where no SA has been made but tax has been paid as SA payments on account, or has been deducted as a sub-contractor deduction.

Link

Income Tax (Pay As You Earn) (Amendment) Regulations 2008 (SI 2008/782)

 

 

About The Author

Sarah Laing
Editor, TaxationWeb News

Sarah is a Chartered Tax Adviser. She has been writing professionally since joining CCH Editions in 1998 as a Senior Technical Editor, contributing to a range of highly regarded publications including the British Tax Reporter, Taxes - The Weekly Tax News, the Red & Green legislation volumes, Hardman's, International Tax Agreements and many others. She became Publishing Manager for the tax and accounting portfolio in 2001 and later went on to help run CCH Seminars (including ABG Courses and Conferences).

Sarah originally worked for the Inland Revenue in Newbury and Swindon Tax Offices, before moving out into practice in 1991. She has worked for both small and Big 5 firms. She now works as a freelance author providing technical writing services for the tax and accountancy profession.

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