The Income Tax (Pay As You Earn) (Amendment No. 2) Regulations 2009

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 for the mandatory electronic communication of certain returns. It is already mandatory for employers employing 50 or more employees to deliver certain information by an approved method of mandatory electronic communications, this is now extended to all employers in respect of the return, and accompanying information, required by regulation 73 (annual return of relevant payments liable to deduction of tax (Forms P35 and P14)) of the PAYE Regulations. (This is referred to as a “relevant annual return” in these Regulations.)

These Regulations also amend the PAYE Regulations to provide that section 108 (suspension of penalties during currency of agreement for deferred payment) of the Finance Act 2009 applies with modifications to surcharges under regulation 203 (default surcharge) of the PAYE Regulations.

Regulation 1 provides for citation, commencement, etc. It provides that the Regulations commence on 13th August 2009 and that regulation 4 has effect in relation to deferred payment agreements made on or after 13th August 2009 and regulations 3 and 5 to 15 apply to the tax year 2009-10 and subsequent years. In relation to regulations 5 to 15, it also provides a transitional provision that the amendments made by these Regulations do not apply for the tax year 2009-10 where the employer is not a specified employer, ceases paying PAYE income in the tax year 2009-10 and submits the return and accompanying information required by regulation 73 of the PAYE Regulations before 6th April 2010.

Regulation 3 updates the provisions listed in regulation 184B(1) of the PAYE Regulations in consequence of the amendments made by these Regulations. It also corrects a minor error in regulation 184B(2).

Regulation 4 inserts a new paragraph (8) in regulation 203, so as to apply section 108 of the Finance Act 2009 to surcharges under regulation 203 for electronic payments made late. That section provides for the suspension of penalties during the currency of a deferred payment agreement.

Regulation 5 substitutes regulations 205 to 205B of the PAYE Regulations in place of the existing regulation 205. Regulation 205 now provides that all employers must deliver a relevant annual return by an approved method of electronic communications. Regulation 205A provides that specified employers must deliver specified information by an approved method of electronic communications. Regulation 205B makes general provisions previously contained in regulation 205.

Regulations 6 and 7 amend regulation 206 to the PAYE Regulations so that it now deals also with the meaning of employer for the purposes of Chapter 4 of the PAYE Regulations. In particular that the term employer does not include a care and support employer or an employer who operates the simplified deduction scheme in accordance with regulation 34 of the PAYE Regulations and who has not received an incentive payment. An “incentive payment” means an incentive payment under the Income Tax (Incentive Payments for Voluntary Electronic Communication of PAYE Returns) Regulations 2003 (S.I. 2003/2495).

A care and support employer is someone who employs a person to provide domestic or personal services at or from the employer’s home. The services need to be provided to the employer or a member of the employer’s family where the recipient of the services has a physical or mental disability, or is elderly or infirm. The exemption does not apply where some other person delivers the relevant annual return on the employer’s behalf or the employer has received an incentive payment in respect of the last 3 tax years.

Regulation 8 inserts a new regulation 206A to the PAYE Regulations which defines the term “relevant annual return”.

Regulation 9 makes an amendment to regulation 207 of the PAYE Regulations in consequence of inserting regulation 206A of the PAYE Regulations.

Regulation 10 updates the references to the Inland Revenue to HMRC in regulation 208 of the PAYE Regulations and makes a consequential amendment.

Regulation 11 substitutes regulation 209 of the PAYE Regulations to make provision for the standard of accuracy and completeness of relevant annual returns.

Regulation 12 and 13 amend regulation 210 of the PAYE Regulations to provide that a penalty is payable where an employer fails to deliver a relevant annual return or any part of it in accordance with regulation 205.

Regulation 14 substitutes regulation 210A and Table 9 and inserts a new regulation 210AA and Table 9ZA to the PAYE Regulations to set out the amount of penalty which is payable. The amount depends on the number of employees in respect of whom particulars should have been included in the relevant annual return.

Regulation 15 amends regulation 210C of the PAYE Regulations and makes provision for appeals and interest.

A full Impact Assessment has not been produced in relation to regulations 3 and 4 of this instrument as no impact on the private or voluntary sectors is foreseen.

A full Impact Assessment of the effect that regulations 5 to 15 of this instrument will have on the costs of business and the voluntary sector is available on the HMRC website and is annexed to the Explanatory Memorandum which is available alongside the instrument on the OPSI website.