EIM11956 - PAYE: special types of payment: notional payments: employee’s requirement to make good PAYE
Section 222 ITEPA 2003
Section 222 ITEPA 2003 is concerned only with the tax that the employer is required to account for to HMRC in accordance with Section 710(4) ITEPA 2003 (see EIM11950). If section 222 applies, the amount that is chargeable to tax is employment income of the employee.
The requirements for a charge under section 222 are threefold. First the employer must be treated as having made a notional payment by virtue of s687, s687A, s689, s689A and s693 to s700. Second the employer must be required under section 710(4) to account to HMRC for an amount of tax (known as “the due amount”) in respect of the notional payment. This is the amount which the employer was unable to deduct from actual payments made to the employee in the same pay period (see EIM11950). Third the employee does not make good the due amount to the employer within the time allowed.
For a notional payment treated as made on a date after 5 April 2014, the time allowed is the period ending 90 days after the end of the tax year in which the relevant date falls.
For a notional payment treated as made on a date before 6 April 2014, the time allowed is the period ending 90 days after the relevant date.
In relation to section 222, “the relevant date” ordinarily means the date on which the employer is treated as making the notional payment (see EIM11970).
If these three criteria are met, there is a charge to tax as employment income equal to the due amount. The amount that is chargeable to tax is employment income of the employee. The employer must report that amount on form P9D or P11D for the employee for the tax year in which the relevant date falls.
The charge arises irrespective of whether or not the employer actually pays the PAYE tax to HMRC (see EIM11954).
Employee makes good after the time allowed
If the employee makes good the relevant amount of income tax to the employer after the time allowed, the Section 222 charge remains. The chargeable date is the date the notional payment was made. For example, in the case of a readily convertible asset, this would be the day the employer transferred ownership of the asset to the employee.