The Income Tax (Pay As You Earn) Regulations 2003

PART 7SPECIAL CASES

CHAPTER 1COUNCILLORS' ALLOWANCES

Interpretation of Chapter 1

118.—(1) In this Chapter—

“allowances” means—

“councillor” means a person entitled to receive any allowances;

“local council” means the local authority, council, joint authority or joint committee paying allowances.

(2) For the purposes of paragraph (1)—

• “council” and “joint committee” are to be read in accordance with section 148(1) of the Local Government Act (Northern Ireland) 1972(6); and

• “local authority” in England and Wales has the meaning given in section 270(1) of the Local Government Act 1972(7), and in Scotland has the meaning given in section 235(1) of the Local Government (Scotland) Act 1973(8).

Councillor’s option to have tax deducted at basic rate

119.—(1) A councillor may, by notice to the Inland Revenue, opt to have income tax deducted from allowances at the basic rate in force at the time of payment of the allowances (the “basic rate option”).

(2) On receiving any such notice the Inland Revenue must give notice to the local council of the councillor’s exercise of the basic rate option.

(3) On receiving a notice under paragraph (2), the local council must, when making any payment of allowances to the councillor, deduct income tax at the basic rate in force at the time of that payment on the non-cumulative basis.

(4) Paragraph (5) applies if—

(a)a councillor has exercised the basic rate option, and

(b)the Inland Revenue consider that the councillor may incur deductible expenses.

(5) The Inland Revenue may direct the local council to disregard an appropriate amount of the allowances in calculating the tax to be deducted.

(6) In paragraph (4)(b), “deductible expenses” means expenses of a kind which would be deductible under sections 336 to 338 of ITEPA (expenses incurred wholly, exclusively and necessarily in performance of duties, and travel expenses).

Particulars that local council must record

120.—(1) This regulation applies if the Inland Revenue have given notice to the local council of the exercise by a councillor of the basic rate option.

(2) The local council must record, in a deductions working sheet (which it must prepare for the purpose unless it has already prepared one) the following particulars about every payment of allowances which it makes to the councillor.

(3) The particulars are—

(a)the councillor’s name,

(b)the councillor’s national insurance number, if known,

(c)the date of the payment,

(d)the amount of the allowances,

(e)where regulation 119(5) applies, the net amount of the allowances from which tax has been deducted, and

(f)the amount of tax deducted from the allowances.

Regulations apply as if basic rate option were issue of code

121.  If a councillor exercises the basic rate option, these Regulations apply as if the Inland Revenue had issued the basic rate code in respect of the allowances.

CHAPTER 2RESERVE FORCES' PAY

Interpretation of Chapter 2

122.—(1) In this Chapter—

“the Ministry” means the Ministry of Defence;

“reserve forces” means the forces specified in paragraph (2);

“reserve pay” means relevant payments made by the Ministry to members of the reserve forces;

“reservist” means any person in receipt of reserve pay, but does not include a person who is not resident in the United Kingdom and is serving outside the United Kingdom.

(2) The forces specified in this paragraph are—

(a)the Royal Naval Reserve (including Queen Alexandra’s Royal Naval Nursing Service Reserve),

(b)the Royal Marines Reserve,

(c)the Territorial Army,

(d)the Royal Auxiliary Air Force,

(e)the University Air Squadron, and

(f)Officers, Adult Instructors and Adult Warrant Officers of the Sea Cadet Corps, Army Cadet Force, Air Training Corps or Combined Cadet Force.

Application of other Parts

123.—(1) Parts 2 (codes) and 3 (deduction and repayment of tax) do not apply to reserve pay.

(2) The rest of these Regulations apply as if the Inland Revenue had issued the basic rate code in respect of reserve pay.

Deduction of tax

124.—(1) On making any payment of reserve pay to a reservist during a tax year, the Ministry must deduct income tax at the basic rate in force when the payment is made.

(2) But the Ministry must not deduct income tax if—

(a)it has received notice from the Inland Revenue of a determination for that tax year under this Chapter that tax is not to be deducted from reserve pay, and

(b)it has not received notice of any amendment of that determination.

(3) This regulation applies even if an objection or appeal has been made under this Chapter.

Determination by Inland Revenue

125.—(1) The Inland Revenue may make a determination that tax is not to be deducted from reserve pay if the Inland Revenue are satisfied that the reservist will not be liable to income tax on the full amount of the reserve pay in a tax year.

(2) For the purpose of making a determination, it must be assumed—

(a)that any reliefs from income tax to which the reservist is entitled are allowable primarily against the reservist’s PAYE income from other sources, and

(b)unless the reservist objects, that the balance (if any) of such reliefs is next allowable against the reservist’s income other than PAYE income.

(3) The Inland Revenue may make a determination before, or at any time during, the tax year.

(4) On making a determination the Inland Revenue must notify the reservist and the Ministry.

Objection against deduction of tax

126.—(1) A reservist who objects to tax being deducted in accordance with regulation 124 (deduction at basic rate) must state the grounds of objection.

(2) On receiving the notice of objection, the Inland Revenue must make a determination whether income tax at the basic rate is to be deducted from the reserve pay.

(3) Regulation 125(2) (assumptions) applies for the purpose of making the determination.

(4) The Inland Revenue must notify the reservist of the determination.

(5) The Inland Revenue may amend the determination by agreement with the reservist.

(6) If the Inland Revenue and the reservist do not reach agreement, the reservist may appeal against the determination by giving notice to the Inland Revenue.

(7) An appeal under paragraph (6) may be made to the General or Special Commissioners.

Appeal to Commissioners

127.—(1) On appeal, the Commissioners must determine whether income tax at the basic rate is to be deducted from the reserve pay.

(2) Regulation 125(2) (assumptions) applies for the purpose of making the determination.

(3) If, on appeal, the Commissioners determine that tax is not to be deducted from the reserve pay, the Inland Revenue must give notice of the determination to the Ministry.

(4) For the purposes of paragraph 3(1)(a) of Schedule 3 to TMA(9) (rules for assigning proceedings to General Commissioners), the relevant place for the appeal is the place where the reservist lives.

Amended determinations

128.—(1) This regulation applies if a determination by the Inland Revenue or the Commissioners under regulation 125, 126 or 127 is found to be inappropriate because the actual circumstances are different from the circumstances by reference to which it was made.

(2) The Inland Revenue must amend the determination.

(3) The Inland Revenue must give notice of the amended determination to the reservist and the Ministry.

(4) Regulations 126 and 127 apply in relation to an amended determination as they apply in relation to a determination under regulation 126(2).

Certificate of tax deducted

129.—(1) On making any payment of reserve pay from which tax is deducted, the Ministry may, and if the reservist so requires must, give the reservist a certificate showing the following particulars.

(2) The particulars are—

(a)the reservist’s name,

(b)the reservist’s national insurance number, if known,

(c)the date of the payment,

(d)the amount of the payment, and

(e)the amount of tax deducted.

Repayment to reservist during tax year

130.—(1) The Ministry must not repay tax in respect of reserve pay to a reservist.

(2) If a reservist applies for a repayment of tax deducted from reserve pay, the Inland Revenue may make such repayment at any time during the tax year as may be appropriate.

(3) In deciding what is appropriate the Inland Revenue must have regard to—

(a)the reserve pay of the reservist for the period from the beginning of the tax year up to and including the date of the application,

(b)the amount of tax deducted from the reserve pay as evidenced by certificates of pay and tax supplied under regulation 129,

(c)any reliefs from income tax to which the reservist is entitled, and

(d)the reservist’s other PAYE income for the tax year and, unless the reservist objects, the reservist’s income for the tax year from all other sources, and liability to tax on that income, as estimated by the Inland Revenue.

Particulars that Ministry must record

131.—(1) The Ministry must record, in a deductions working sheet, the following particulars about every payment of reserve pay made to a reservist.

(2) The particulars are—

(a)the reservist’s name,

(b)the reservist’s national insurance number, if known,

(c)the tax year to which the deductions working sheet relates,

(d)the date of the payment,

(e)the amount of the payment, and

(f)the amount of tax (if any) deducted on making the payment.

End of year certificate

132.—(1) The Ministry must give an end of year certificate to a reservist in respect of whom the Ministry was required to prepare or maintain a deductions working sheet.

(2) The certificate must be given before 1st June following the end of the tax year to which it relates.

(3) The certificate must show—

(a)the tax year to which it relates,

(b)the reservist’s name,

(c)the reservist’s national insurance number, if known,

(d)the total amount of reserve pay paid by the Ministry to the reservist during the tax year,

(e)the total tax deducted from the reserve pay,

(f)the force in which the reservist was serving, and

(g)the reservist’s service number.

Other PAYE income of reservist

133.  Nothing in this Chapter affects the application of these Regulations to any other PAYE income of a reservist.

CHAPTER 3HOLIDAY PAY FUNDS

Interpretation of Chapter 3

134.  In this Chapter—

“fund” means a person who pays holiday pay—

“holiday pay” means—

“recipient” means a person who is paid holiday pay.

Application of other Parts

135.—(1) Parts 2 (codes) and 3 (deduction and repayment of tax) do not apply to holiday pay.

(2) The rest of these Regulations apply as if the Inland Revenue had issued the basic rate code in respect of holiday pay.

Deduction of tax

136.  On making any payment of holiday pay to a recipient, a fund must deduct income tax at the basic rate in force at the time the payment is made.

Certificate of tax deducted

137.—(1) On making any payment of holiday pay, a fund must give the recipient a certificate showing the following particulars.

(2) The particulars are—

(a)the recipient’s name,

(b)the recipient’s national insurance number, if known,

(c)the tax year in which the payment is made,

(d)the date of the payment,

(e)the amount of the payment, and

(f)the amount of tax deducted on making the payment.

Repayment to recipient during tax year

138.—(1) A fund must not repay tax deducted from a payment of holiday pay to a recipient.

(2) If a recipient applies for a repayment of tax deducted from holiday pay, the Inland Revenue may make such repayment at any time during the tax year as may be appropriate.

(3) In deciding what is appropriate the Inland Revenue must have regard to—

(a)the holiday pay of the recipient for the period from the beginning of the tax year up to and including the date of the application,

(b)the amount of tax deducted from the holiday pay as evidenced by certificates supplied under regulation 137,

(c)any entitlement of the recipient to relief from income tax, and

(d)the recipient’s other PAYE income for the tax year and, unless the recipient objects, the recipient’s income for the tax year from all other sources, and liability to tax on that income, as estimated by the Inland Revenue.

Particulars that fund must record

139.—(1) A fund must record, in a deductions working sheet, the following particulars about every payment of holiday pay made to a recipient.

(2) The particulars are—

(a)the recipient’s name,

(b)the recipient’s national insurance number, if known,

(c)the tax year to which the deductions working sheet relates,

(d)the date of the payment,

(e)the amount of the payment, and

(f)the amount of tax (if any) deducted on making the payment.

Other PAYE income of recipient

140.  Nothing in this Chapter affects the application of these Regulations to any other PAYE income of a recipient.

CHAPTER 4DIRECT COLLECTION AND SPECIAL ARRANGEMENTS

Direct collection and special arrangements

141.—(1) In—

(a)cases of casual employment, and

(b)any other case in which the Inland Revenue are of the opinion that deduction of tax by reference to the tax tables is impracticable,

the Inland Revenue may proceed in accordance with regulation 142, or make special arrangements for the collection of tax in respect of PAYE income of any employees.

(2) A special arrangement does not apply to PAYE income of an employer’s employees if—

(a)the arrangement has not been agreed with the employer, and

(b)the employer does not proceed in accordance with the arrangement.

Direct collection: issue of deductions working sheet

142.—(1) The Inland Revenue may issue a deductions working sheet to an employee specifying—

(a)the employee’s name,

(b)the capacity in which the employee receives relevant payments,

(c)the employee’s code, and

(d)the tax year to which the deductions working sheet relates.

(2) In such a case regulations 143 to 147 apply unless, within 30 days beginning with the receipt of the deductions working sheet, the employee objects to the use of the direct collection procedure.

Direct collection: employee to keep records

143.—(1) Whenever the employee receives any relevant payment during the tax year, the employee must record in the deductions working sheet—

(a)the amount of the payment,

(b)the date on which it was received, and

(c)the total payments to date.

(2) In addition, the employee must record in the deductions working sheet in relation to the last date in a tax quarter on which the employee receives a relevant payment—

(a)the total free pay to date or, as the case may be, the total additional pay to date in relation to that date according to the employee’s code, and

(b)the corresponding total tax to date.

(3) If the employee does not receive any relevant payments in a tax quarter, the last day of the quarter must be used for the purposes of paragraph (2).

(4) If the employee receives relevant payments in more than one capacity, no account is to be taken for the purposes of this regulation and regulations 144 to 147 of the relevant payments received by the employee in any capacity other than that mentioned in the deductions working sheet.

(5) In this regulation and regulations 145 and 146, “total payments to date” means, in relation to any date, the sum of all relevant payments received by the employee from the beginning of the tax year up to and including that date, irrespective of the person or persons from whom it was received.

Direct collection: payment

144.—(1) In this regulation—

“the current total tax” means the total tax to date required to be recorded in the deductions working sheet by an employee under regulation 143(2)(b);

“the previous total tax” means the total tax to date (if any) required to be recorded for the previous tax quarter in the tax year.

(2) If, in relation to any tax quarter, the current total tax exceeds the previous total tax, the employee must pay the excess to the Inland Revenue, within 14 days after the end of the tax quarter.

(3) But if, in relation to any tax quarter, the previous total tax exceeds the current total tax, the employee may recover the excess—

(a)by deducting it from the amount payable under paragraph (2) for a later quarter in the tax year, or

(b)from the Board of Inland Revenue.

(4) If the employee’s code is a K code, the amount payable under paragraph (2) is not to exceed the overriding limit in relation to the relevant payments which the employee has received in that tax quarter.

(5) Any amount which is not payable because of the application of paragraph (4) must be added to the current total tax for the purpose of the calculation in paragraph (2) or (3) for the next tax quarter (if any) of that tax year.

Direct collection: return when relevant payments cease

145.—(1) When no longer receiving relevant payments, the employee must, without unreasonable delay, send a return to the Inland Revenue showing the following particulars.

(2) The particulars are—

(a)such particulars as the Board may require for identifying the employee,

(b)the tax year to which the return relates,

(c)the last date on which the employee received any relevant payments (“the last date”),

(d)the employee’s total payments to date at the last date,

(e)the corresponding total tax to date at the last date, and

(f)if the employee’s code is a K code, the amount, if any, of that corresponding total tax to date which is not payable because of regulation 144(4) (overriding limit).

Direct collection: end of year return

146.—(1) Before 20th May following the end of the tax year, the employee must deliver a return to the Inland Revenue.

(2) The return must show—

(a)such particulars as the Board may require for identifying the employee,

(b)the tax year to which the return relates,

(c)the employee’s total payments to date at the end of the tax year,

(d)the total tax to date calculated for the last tax quarter in the tax year, and

(e)if the employee’s code is a K code, the amount, if any, of that total tax to date which is not payable because of regulation 144(4) (overriding limit).

(3) But paragraph (1) does not apply if the employee has already delivered a return under regulation 145 or section 8 of TMA(10) (personal returns).

(4) If a return is required by paragraph (1), regulations 76, 84 and 218 (which relate to the certification and recovery of tax remaining unpaid by an employer for any tax year) apply with the necessary modifications in the case of any tax remaining unpaid by the employee.

(5) Section 98A of TMA(11) (special penalties in case of certain returns) applies to paragraph (1).

Direct collection: failure to pay

147.—(1) This regulation applies if, within 14 days after the end of any tax quarter—

(a)the employee has not paid any tax for that quarter, and the Inland Revenue are unaware of the amount, if any, which the employee is liable to pay for that quarter, or

(b)the employee has paid an amount of tax for that quarter, but the Inland Revenue are not satisfied that it is the full amount which the employee is liable to pay for that quarter.

(2) The Inland Revenue may give notice to the employee requiring the employee, within 14 days of the issue of the notice, to deliver a return showing the amount of tax which the employee is liable to pay under regulation 144(2) in respect of the tax quarter in question.

(3) If such a notice is given, regulations 77, 84 and 218(5) and (6) (which relate to the certification and recovery of tax unpaid by an employer) apply with the necessary modifications for the purposes of ascertaining, certifying and recovering the tax payable by the employee as if it were tax which the employee was liable to deduct from relevant payments paid by the employee.