Explanatory note
(This note is not part of the Regulations)
These Regulations amend the Income Tax (Pay as You Earn) Regulations 2003 (S.I. 2003/2682: “the PAYE Regulations”) to provide the necessary accounting and reporting mechanisms for payments which are retrospectively re-characterised as employment income for the purposes of the Income Tax (Earnings and Pensions) Act 2003 (c. 1). The first instance of payments being re-characterised in this way is to be found in section 92 of the Finance Act 2006 (c. 25), and followed an announcement made to the House of Commons by the Paymaster-General in a Written Statement on 2nd December 2004 (Hansard Column 45WS of that date).
Regulation 1 provides for the citation and commencement of the Regulations.
Regulation 2 introduces the amendments to the PAYE Regulations.
Regulation 3 inserts definitions into regulation 2 of the PAYE Regulations. One of these is the concept of the “qualifying payment” – a payment which was not subject to income tax at the time it was paid but which is retrospectively re-characterised as employment income.
Regulation 4 inserts a new regulation 36A into the PAYE Regulations specifying information which an employer must give to an employee where a payment has been made, the employee has left the employment, and the payment is subsequently re-characterised as employment income.
Regulation 7 inserts a new regulation 50A into the PAYE Regulations dealing with the situation where a qualifying payment has been made to a person in respect of whom HMRC have never issued a code in respect of the employment giving rise to the payment.
Regulation 9 amends regulation 66 of the PAYE Regulations to provide for the inclusion on a deductions working sheet maintained by an employer of entries in open tax years relating to amounts which are retrospectively charged to income tax. A further amendment makes it clear that the regulation does not apply to a closed year.
Regulation 10 inserts regulation 66A into the PAYE Regulations. This provides that a deductions working sheet must be prepared for a closed year where, as a result of a retrospective tax provision, an amount becomes subject to tax, and if one had been prepared before, that it must be revised to reflect the effect of the retrospective tax provision, on the employee’s total PAYE income.
Regulation 11 inserts regulation 67A into the PAYE Regulations. This requires an employer who has already delivered a Form P60 to an employee, and whose employment income is increased in a closed tax year as a consequence of a retrospective tax provision, to give the employee a revised Form P60 not later than 1st January following the passing of the enactment containing the retrospective tax provision. In the case of an employee who has not been given a P60 for a closed tax year, but whose employment income is increased by a retrospective tax provision, the employer must, not later than that date, give the employee a copy of the revised Form P14 prepared under regulation 73A.
Regulation 12 amends regulation 68 of the PAYE Regulations to reflect the provisions of section 710(7A) of ITEPA 2003 (the subsection was inserted by section 94 of the Finance Act 2006). This subsection provides for the determination of the date on which a notional payment, which arises by reason of a retrospective provision, is treated as made. It also contains a transitional rule to deal with sums which are retrospectively charged to tax as employment income by virtue of the 2006 Act.
Regulation 13 amends regulation 69 of the PAYE Regulations so that the due date for payment of tax under a retrospective tax provision is 14 or (if paid electronically in respect of an open year) 17 days after the end of the tax period immediately following that in which the Act containing it is passed.
Regulation 14 amends regulation 70 of the PAYE Regulations so that it does not apply to payments of tax due payable by virtue of a retrospective tax provision and so that those payments are left out of account in determining whether for other purposes an employer is entitled to account to HM Revenue and Customs on a quarterly basis for income tax collected under PAYE.
Regulation 15 inserts regulation 73A into the PAYE Regulations. This provides for the delivery of a revised Form P14 and a Form P35(RL) where relevant payments by an employer for a closed tax year increase as a result of a retrospective tax provision.
Regulation 16 amends regulation 82 of the PAYE Regulations to adapt the concept of a due date for computing interest where income tax, relating to a closed tax year, becomes due by virtue of a retrospective tax provision.
Regulation 17 amends regulation 199 of the PAYE Regulations (under which large employers are required to make specified payments electronically) so as to disapply it in the case of a payment of tax due under a retrospective tax provision for a closed tax year.
Regulation 18 amends regulation 205 of the PAYE Regulations (mandatory use of electronic communications in certain circumstances) so as to disapply it in the case of information about payments of tax due under a retrospective tax provision for a closed tax year.
Regulation 19 amends the Table in regulation 211 of the PAYE Regulations to insert the appropriate entries about the new Form P35 (RL) required by regulation 73A.
These Regulations do not impose new costs on businesses, unless they engage in contrived schemes to avoid income tax and national insurance contributions on remuneration paid to their employees. Employers not engaged in such activity will be unaffected.