The Income Tax (Pay As You Earn) Regulations 2003

In these Regulations, unless the context otherwise requires—

• “additional pay” means the appropriate amount, established from an employee’s code (where it is a K code not used on the cumulative basis) and the tax tables, to be added to the relevant payments made to an employee in order to determine the taxable payments;

• F243“additional rate” in relation to the charging of income tax for any tax year, means the rate of income tax determined under section 6(2) of ITA;

• “agency” has the meaning given in section 44 of ITEPA;

• “agency worker” means a worker whose services are treated by section 44 of ITEPA as the duties of an employment held with the agency;

• “approved method of electronic communications” has the meaning given in regulation 189;

• “basic rate”, in relation to the charging of income tax for any tax year, means the rate of income tax determined under section 1(2)(a) of ICTA6;

• “Board of Inland Revenue” means the Commissioners of Inland Revenue (as to which see in particular the Inland Revenue Regulation Act 18907);

• F59“closed tax year” means any tax year preceding the current year, and cognate expressions shall be construed accordingly;

• “code” and related expressions have the meanings given in regulation 7;

• F197“combined amount” means an amount which includes tax due under these regulations and one or more of the following—

  1. a

     earnings-related contributions due under the SSC Regulations;

  2. b

     amounts due under the Income Tax (Construction Industry Scheme) Regulations 2005;

  3. c

     payments of repayments of student loans due under the Student Loan Regulations;

• “cumulative basis” means the basis of deduction or repayment of tax provided for in regulation 23;

• “deductions working sheet” means—

  1. a

     any form of record in which are to be kept the matters required by these Regulations in connection with an employee’s relevant payments and tax;

  2. b

     F443...

• “earnings” has the meaning given in sections 62 and 721(7) of ITEPA;

• “electronic communications” has the meaning given in regulation 189;

• “employee’s code” has the meaning given in regulation 8(1);

• “employer reference” means the combination of letters, numbers or both used by the Inland Revenue to identify an employer for the purposes of these Regulations;

• “employer’s PAYE reference”, in relation to an employer, means the combination of the employer’s employer reference and the Inland Revenue office number;

• “employment”, subject to regulations 10 to 12, has the meaning given in sections 4 and 5 of ITEPA; and “employer” and “employee” have corresponding meanings;

• “excluded business expenses” has the meaning given in regulation 5;

• “family” and “family or household”, in relation to a person, have the meanings given in section 721(4) and (5) of ITEPA;

• “free pay” means the appropriate amount, established from an employee’s code (where not used on the cumulative basis) and the tax tables, to be subtracted from relevant payments to arrive at taxable payments (and accordingly represents an appropriate part of reliefs allowable against those payments);

• “general earnings” has the meaning given in section 7(3) of ITEPA;

• “higher rate”, in relation to the charging of income tax for any tax year, means the rate of income tax determined under section 1(2)(b) of ICTA8;

• F59“HMRC” means Her Majesty’s Revenue and Customs;

• “ICTA” means the Income and Corporation Taxes Act 19889;

• “Inland Revenue” means any officer of the Board of Inland Revenue;

• “Inland Revenue office”, in relation to an employer, means the office of the Inland Revenue from which codes are normally issued to the employer;

• “Inland Revenue office number” means the number which identifies an employer’s Inland Revenue office;

• F197“ITA” means the Income Tax Act 2007;

• “ITEPA” means the Income Tax (Earnings and Pensions) Act 200310;

• F245“large employer” has the meaning given in regulation 198A;

• F311“lower earnings limit” means the lower earnings limit for Class 1 contributions for the purposes of section 5(1) of the Social Security Contributions and Benefits Act 1992;

• “national insurance number” means the national insurance number allocated within the meaning of regulation 9 of the Social Security (Crediting and Treatment of Contributions, and National Insurance Numbers) Regulations 200111;

• “net PAYE income” has the meaning given in regulation 3;

• “non-cumulative basis” means the basis of deduction of tax provided for in regulation 27;

• F310“non-Real Time Information employer” means an employer other than one within regulation 2A;

• F310“non-Real Time Information pension payer” means a pension payer other than one within regulation 2B;

• F244“notice” means as follows and “notify” must be read accordingly—

  1. a

     notice in writing, or in a form authorised (in relation to the case in question) by directions under section 118 of the Finance Act 1998 (which allows certain claims etc to be made by telephone)

  2. b

     for the purpose of regulation 19 (Amendment of code), notice in writing or by telephone;”.

• “notional payment” has the meaning given in section 710(2)(a) of ITEPA;

• “objects” means gives a notice of objection to the Inland Revenue;

• “official computer system” has the meaning given in regulation 189;

• “other payee” means a person receiving relevant payments in a capacity other than employee, agency worker or pensioner;

• “other payer” means a person making relevant payments in a capacity other than employer, agency or pension payer;

• “overriding limit” means the limit on the amount of tax to be deducted from a relevant payment, where the tax due in accordance with the appropriate tax tables in respect of any taxable payments or total taxable payments to date at the relevant date has been calculated by reference to additional pay or total additional pay to date, and that limit is an amount equal to 50% of the amount of the relevant payment;

• “PAYE income” has the meaning given in section 683 of ITEPA;

• “PAYE pension income” has the meaning given in section 683(3) of ITEPA;

• “PAYE threshold” must be determined in accordance with regulation 9;

• “payee” means an employee, agency worker, pensioner or other payee;

• “payer” means an employer, agency, pension payer or other payer;

• “pension” means a pension, annuity or other payments of PAYE pension income;

• “pensioner” means a person receiving PAYE pension income;

• “pension payer” means a person making payments of PAYE pension income;

• “PSA” means a PAYE settlement agreement made in accordance with regulation 105;

• “qualifying general earnings”, in relation to a PSA, has the meaning given in regulation 106;

• F59“qualifying payment” means a payment which becomes retrospective employment income as a relevant payment (including a notional payment);

• F310“Real Time Information employer” has the meaning given in regulation 2A;

• F310“Real Time Information pension payer” has the meaning given in regulation 2B;

• F485...

• “relevant payments” has the meaning given in regulation 4;

• “relevant pension payments” has the meaning given in regulation 6;

• F59“the relevant time”, in relation to retrospective employment income, has the meaning given by section 710(7) of ITEPA, as modified by subsection (7A) of that section, but subject to section 94(5)(c) of the Finance Act 2006;

• “reliefs from income tax” includes allowances and deductions;

• F59“retrospective contributions regulations” has the meaning given by regulation 1(2) of the SSC Regulations;

• F59“retrospective employment income” means payments which are retrospectively treated as payments of employment income by virtue of a retrospective tax provision;

• F59“retrospective tax provision” means a provision of the Income Tax Acts charging to income tax amounts of employment income paid before the enactment containing the provision was passed;

• F311“seconded expatriate” means an employee meeting one of the following descriptions—

  1. a

     an employee in section 689 of ITEPA (employee of non-UK employer); or

  2. b

     an employee in a branch of an employer where—

     1. i

        these Regulations would not apply to that employer but for that branch,

     2. ii

        the employer seconded the employee to that branch, and

     3. iii

        the employee was not employed in the United Kingdom immediately before the secondment;

• F246“specified date” for the purposes of Chapter 3 of Part 10, has the meaning given in regulation 198A;

• F59“SSC Regulations” means the Social Security (Contributions) Regulations 2001;

• F219...

• F312“Student Loan Regulations” means the Education (Student Loans) (Repayment) Regulations 2009 or, in Northern Ireland, the Education (Student Loans) (Repayment) Regulations (Northern Ireland) 2009;

• “taxable payments” means relevant payments reduced by free pay or, as the case may be, increased by additional pay (where the employee’s code is not used on the cumulative basis);

• “tax month” means the period beginning on the 6th day of a calendar month and ending on the 5th day of the following calendar month;

• “tax not deducted because of the overriding limit” means any tax—

  1. a

     which is due at the relevant date in accordance with the appropriate tax tables in respect of any taxable payments or total taxable payments to date, but

  2. b

     which has not been deducted because of the overriding limit;

• “tax period” means—

  1. a

     tax quarter, if F444... regulation 70 (quarterly tax periods) applies, or

  2. b

     tax month, in every other case;

• “tax quarter” means any of the following (inclusive) periods—

  • 6th April to 5th July,

  • 6th July to 5th October,

  • 6th October to 5th January, and

  • 6th January to 5th April;

• “tax tables” means the tax tables prepared by the Board of Inland Revenue under section 685 of ITEPA14;

• “tax week” means 6th April to 12th April (inclusive) and each successive period of 7 days, except that the final tax week in a tax year (“Week 53”) is just the last day of the tax year (or last 2 days in a leap year);

• “tax year” means a year for which any Act provides for income tax to be charged;

• “TMA” means the Taxes Management Act 197015;

• “total additional pay to date” means the appropriate amount, established from an employee’s code (where it is a K code to be used on the cumulative basis) and the tax tables, to be added to the total payments to date in order to determine the total taxable payments to date;

• “total free pay to date”, in relation to any date, means the appropriate amount, established from an employee’s code (where used on the cumulative basis) and the tax tables, to be subtracted from total payments to date to arrive at total taxable payments to date (and accordingly represents an appropriate part of reliefs allowable against those payments);

• “total net tax deducted”, in relation to the relevant payments made to an employee during any period, means the total tax deducted from those payments plus any tax accounted for in accordance with regulation 62(5) (notional payments), less any tax repaid to the employee;

• “total payments to date”, in relation to any date, means the sum of all relevant payments made by the employer to the employee from the beginning of the tax year up to and including that date;

• “total tax to date” means the tax due at any date in accordance with the appropriate tax tables in respect of any total taxable payments to date;

• “total taxable payments to date” means total payments to date reduced by total free pay to date or, as the case may be, increased by total additional pay to date (where the employee’s code is used on the cumulative basis);

• “trade dispute” has the meaning given in section 35(1) of the Jobseekers Act 199516 or, in Northern Ireland, in article 2(2) of the Jobseekers (Northern Ireland) Order 199517.

• F165“tribunal” means the First-tier Tribunal or, where determined by or under Tribunal Procedure Rules, the Upper Tribunal.

References in these Regulations to income tax in respect of PAYE income (however expressed) are references to income tax in respect of that income if reasonable assumptions are, when necessary, made about other income.

An employer is within this paragraph if the employer has been given a general or specific direction by the Commissioners for Her Majesty’s Revenue and Customs before 6th October 2013 to deliver to HMRC returns under regulation 67B (real time returns of information about relevant payments).

A pension payer is within this paragraph if the pension payer has been given a general or specific direction by the Commissioners for Her Majesty’s Revenue and Customs before 6th October 2013 to deliver to HMRC returns under regulation 67B (real time returns of information about relevant payments).

In paragraph (1)—

• F35allowable pension contributions“ means any contribution under a registered pension scheme which is withheld from the payment of PAYE income which is allowed to be deducted from employment income by the sponsoring employer under section 193(2) of the Finance Act 2004 (relief under net pay arrangements);

• “registered pension scheme” and “sponsoring employer” have the meanings given by section 150(2) and (6) respectively, of the Finance Act 2004.

• “allowable donations to charity” means any donation which is withheld from the payment of PAYE income and for which a deduction must be allowed under section 713 of ITEPA (donations to charity: payroll deduction scheme).

In paragraph (1)—

• “excluded business expenses” has the meaning given in regulation 5;

• “excluded notional payments” means notional payments which an employer is treated as making by section 694 or 695 of ITEPA (non-cash vouchers and credit tokens) as a result of an employee using a non-cash voucher or credit token on behalf of the employer, except where the voucher or token is used as, or as part of, any scheme or arrangement the purpose, or one of the main purposes, of which is—

  1. a

     to provide the employee with money or an asset, or

  2. b

     to avoid the making of a relevant payment;

• “excluded pecuniary liabilities” means payments made to a person other than an employee to meet the employee’s liability to that other person, but which are not made—

  1. a

     in fulfilment (in whole or in part) of the employee’s right to a sum of money, nor

  2. b

     as, or as part of, any scheme or arrangement the purpose, or one of the main purposes, of which is to avoid the making of a relevant payment;

• “excluded relocation expenses” means payments in respect of removal expenses, as defined by section 272 of ITEPA (removal benefits and expenses to which section 271 applies), if, and to the extent that, they are payments of net PAYE income;

• “PAYE social security income” has the meaning given in section 683(5) of ITEPA;

• “United Kingdom social security pensions” means income which is taxable income in accordance with section 578 of ITEPA (UK social security pensions).

“Excluded business expenses” means expenses within Chapter 3 of Part 3 of ITEPA (earnings and benefits treated as earnings) which the Inland Revenue have authorised the employer to exclude from relevant payments in accordance with this regulation.

The Inland Revenue may authorise an employer to exclude any payment of expenses from relevant payments if the Inland Revenue are of the opinion that a deduction or relief will, or is likely to, result in no tax being payable as a result of the payment.

The Inland Revenue must notify an employer of any excluded business expenses and the date from which the exclusion is to apply.

The Inland Revenue may revoke the authorisation to exclude business expenses by giving notice to the employer specifying the date of the notice or a subsequent date as the date from which the revocation has effect.

“K code” means a code which gives rise to additional pay or total additional pay to date.

In paragraph (3)—

• “blind person’s allowance” means an allowance claimed under either section 265 of ICTA (blind person’s allowance) or section 38 of ITA (blind person’s allowance);

• “personal allowance” means an allowance claimed under either section 257(1) of ICTA (personal allowance) or section 35 of ITA (personal allowances for those aged under 65).

The rules set out in Table 1 apply in order to determine whether a relevant payment made by an employer to an employee is a relevant payment which exceeds the PAYE threshold.

Rules 1 to 5 apply if the employer normally pays the employee at regular intervals.

If an employee has more than one normal payment interval in respect of payments made by the same employer, the rules must be applied on the basis of the shorter or shortest of those intervals.

If an employee’s normal payment interval is longer than a year, the rules must be applied as if the normal payment interval were a year.

“Weekly PAYE threshold” means 1/52 of the personal allowance specified in section 257(1) of ICTA, rounded to the nearest pound.

“Monthly PAYE threshold” means 1/12 of the personal allowance specified in section 257(1) of ICTA, rounded to the nearest pound.

The “corresponding proportion of the weekly PAYE threshold” is established by dividing the number of days in the payment interval by 7, and multiplying the result by the weekly PAYE threshold.

The regulations are—

The following regulations do not apply to agencies or agency workers in their capacity as such—

The following regulations do not apply to pension payers or pensioners in their capacity as such—

The following regulations do not apply to other payers or other payees in their capacity as such—

Paragraph (2) is subject to regulation 91(9) (termination awards: former employers and employees).

The following regulation does not apply to other payees in their capacity as such—

Paragraphs (1)(c) and (d) are subject to regulations 186 and 187 (recovery and repayment: adjustment of employee’s code).

HMRC may determine a code so as to effect recovery of all or part of a relevant debt within the meaning of section 684 of ITEPA (sums owed to HMRC).

A determination in reliance on paragraph (1) does not prevent recovery by other means (whether or not under a provision of TMA) of all or any part of a relevant debt that is not recovered by deduction in accordance with the code (whether or not it was at any stage expected to be recovered by deduction).

Sums deducted or to be deducted as a result of a determination made in reliance on paragraph (1) are to be treated, for the purposes of employers’ obligations and enforcement, in the same way as amounts of tax which the employer is liable to pay under provisions of these Regulations (so, for example, regulation 84 applies for the purposes of recovery).

Sums deducted as a result of a determination made in reliance on paragraph (1) are to be treated for the purposes of interest on the relevant debt as having been paid on the first day of the tax year in respect of which the determination is made.

HMRC may determine that the code for use by an employer in respect of an employee for a tax year is the additional rate code, if they have reason to believe that the employee will be chargeable at the additional rate on all or a substantial part of the employee’s relevant payments.

The Inland Revenue may determine that the code for use by an employer in respect of an employee for a tax year is the higher rate code, if they have reason to believe that the employee will be chargeable at the higher rate on all or a substantial part of the employee’s relevant payments.

The Inland Revenue may determine that the code for use by an employer in respect of an employee for a tax year is the basic rate code, if they have reason to believe that the employee will be chargeable at the basic rate on all or a substantial part of the employee’s relevant payments.

References in this regulation to an employee’s relevant payments, PAYE income and income are references to the payments or income in respect of which the employee’s code is being determined for the purposes of the employment in question.

If the Inland Revenue determine that the code for use by an employer in respect of an employee for a tax year remains the same as at the previous 5th April, the Inland Revenue need not issue a code to the employer.

If for any tax year the employer does not receive a code for an employee who was in that employer’s employment on the previous 5th April, the code which applied on that date is treated as having been issued by the Inland Revenue for the tax year in question.

The Inland Revenue must give notice to an employee of the code which they have determined for use in respect of that employee for any tax year.

An employee who objects to the determination of a code must state the grounds of objection.

On receiving the notice of objection the Inland Revenue may amend the determination of the code by agreement with the employee.

If the Inland Revenue and employee do not reach agreement, the employee may appeal F124... against the determination of the code by giving notice to the Inland Revenue.

F84On an appeal that is notified to the tribunal, the tribunal must determine the code in accordance with these Regulations.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Paragraph (2) applies if the code for use by an employer in respect of an employee is found to be inappropriate because the actual circumstances are different from the circumstances by reference to which it was determined, whether by the Inland Revenue or the F3tribunal.

The Inland Revenue may, and if required by the employee must, amend the code by reference to the actual circumstances.

The Inland Revenue must give notice of the amended code to the employee by the date on which the notice under regulation 20(1) is issued to the employer.

But notice need not be given where the change in the code is solely because of an alteration or proposed alteration in the rates of any of the personal reliefs allowable under sections 257 and 257A of ICTA (personal allowance and married couple’s allowance) or in the tax tables.

Regulation 18 (objections and appeals) applies in relation to the amended code as it applies in relation to the original code.

Regulation 18 also applies if the Inland Revenue do not agree that the circumstances have changed and so refuse to amend the code in accordance with paragraph (2).

If the code for use by an employer in respect of an employee is amended after notice of it has been issued to the employer, the Inland Revenue must issue the amended code to the employer.

An amended code is issued to an employer if it is contained in a document that is sent to the employer or a person acting on behalf of the employer by the Inland Revenue, and any code so issued is received by the employer for the purposes of these Regulations.

On making any subsequent relevant payment to the employee, the employer must deduct or repay tax by reference to the amended code.

Paragraphs (5) and (6) apply if there is a change or proposed change in the rates of any of the personal reliefs allowable under sections 257 and 257A of ICTA (personal allowance and married couple’s allowance).

If the change or proposed change relates to the current tax year, the Inland Revenue may give notice requiring the employer, with effect from the date specified in the notice, to amend specified codes as directed.

If the change relates to the following tax year, the Inland Revenue may give notice requiring the employer to carry forward to the following tax year specified codes of the current tax year and adjust them as directed in the notice.

A notice under paragraphs (5) and (6) may be issued to the employer or to a person acting on behalf of the employer.