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Income Tax (Earnings and Pensions) Act 2003

What is and is not a payment for PAYE

2732.The distinction between what is and is not a payment of Schedule E income matters because:

  • a person making a payment of Schedule E income must, subject to the PAYE regulations, deduct tax in accordance with the regulations;

  • a person providing income without making a payment does not have to deduct tax (but may still have to comply with requirements in the regulations to report it – for example the report of benefits in kind and expenses on form P11D).

2733.The boundary between what is and is not a payment was used to avoid PAYE (often as part of attempts also to avoid National Insurance Contributions). This led to legislation to treat income as paid – mainly in:

  • section 127 of FA 1994 which inserted section 203F to 203L of ICTA. These, broadly speaking, treated as payments any income provided in the form of tradeable assets; and

  • section 65 of FA 1998 which amended and extended the 1994 legislation to cover a wider range of things which could readily be converted into money.

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