The Special Commissioner's decision in the case of Demibourne Ltd (SpC 486) highlighted a number of tax issues for employers and their employees that can arise as a consequence of an employer's failure to operate PAYE.
The decision meant that HMRC had to seek recovery of PAYE from the employer even if tax had already been paid by (or on behalf of) the employee under self assessment.
As an interim solution a mandate was devised, which employees could sign authorising any repayments of self assessment tax to be set off against the employer's PAYE liability.
HMRC have now published guidance on the practical effect of the amended PAYE regulations 72E, 72F and 72G.
The taxman has provided several examples showing how this will work in practice. It is not possible to capture every possible situation, but those examples provided are helpful.
In the last four bullets points before the section entitled In what circumstances would HMRC consider a direction, HMRC helpfully explain what events are not trigger events.
It is also worth noting just before these four bullets, HMRC point out that an employer's letter of offer is regarded as being received (and so is a trigger event) even if it is subsequently rescinded.
In his article Sticks and Bone, Mark Groom of PricewaterhouseCoopers made the point that there might be difficulty in identifying the relevant income and tax payments where there were many sources of income possibly over many tax years.
HMRC have helpfully explained at the end of their Example 2 that: 'provided there is sufficient income self assessed to cover the income from the employer concerned, HMRC will accept that the tax self assessed or paid on account represents the tax on the re-categorised income'.
The Revenue goes on to explain that 'where there are several sources, a reasonable apportionment can be made when arriving at the amount of tax to be directed'.
At the very end of that article, Mark said that mandates may still be useful.
HMRC address mandates in the new guidance and explain that these will normally give rise to trigger events to which HMRC will respond with a direction (assuming no other trigger event has arisen before 6 April 2008).
