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Readers may recall that Demibourne Ltd v HMRC ([2005] SSCD 667) dealt with the situation in which a worker had been paid gross as though self-employed and had paid income tax on that income.
But HMRC had subsequently determined that he was an employee and that there was a PAYE liability on the employer.
This was dealt with by Blaise Marin-Curtoud and Ian Reid in their article Settling for more?
Previously in such cases there had, unofficially, been set-offs of the liability paid by the worker against that of the employer, but Demibourne highlighted the question of the legality of this.
Furthermore, although Regulation 72 of the Income Tax (PAYE) Regulations SI 2003 No 2682 does allow PAYE arrears to be recovered from an employee, this is only in the limited circumstances where the employer made an error in good faith or the employee received the payment knowing that the employer wilfully failed to deduct the tax.
Following Demibourne, the CIOT and HMRC have — as previously reported — been in discussion to find a way to resolve this matter.
HMRC have now announced that, with effect from 6 April 2008, amended PAYE regulations will allow the department to make a direction to transfer the PAYE liability from an employer to an employee where, in addition to other conditions, the tax has been assessed on the income in the employee's self assessment or the tax has been paid as a payment on account or sub-contractor deduction.
HMRC have published some 'frequently asked questions' on the 'new legislation to transfer a PAYE liability from an employer to an employee' and these can be found here.
We hope to cover the new rules in more detail in the future.
