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Income Tax (Earnings and Pensions) Act 2003

Chapter 2: PAYE: general
Overview

2746.Section 684 requires the Board to make regulations to collect income tax on PAYE income. These regulations include in particular requirements for those making payments of PAYE income to deduct tax by reference to tax tables.

2747.Section 685 requires the tax tables to try to collect the right amount of tax on the PAYE income by the end of each tax year and to try to do so evenly.

2748.Section 686 defines when a payment of PAYE income is made for PAYE purposes (in the same way as section 18 defines when earnings are received for the purposes of Part 2).

Section 684: PAYE regulations

2749.This section provides powers for the Board of Inland Revenue to make PAYE regulations. It derives mainly from part of section 203 of ICTA.

2750.Item 5 derives from section 203(10). It allows PAYE regulations to provide for the way in which any matters dealt with in the regulations are to be proved – for example in proceedings to recover tax. Section 203(10) also includes provision for proving the contents or transmission of anything that, by virtue of the regulations, takes an electronic form or is transmitted to any person by electronic means. This Part of the provision was enacted to deal with electronic filing, a predecessor of filing by internet. It is due to be repealed by section 139 of and Part VII of Schedule 20 to FA 1999 from a date laid down by Order, and is therefore omitted. Paragraph 89 of Schedule 7 to this Act preserves the omitted words in the meantime.

2751.Items 10 and 11 derive from sections 203L(4) and 206A(6) of ICTA but are applied more widely in this Act. See Change 147 in Annex 1.

2752.Subsection (8) defines the term “PAYE regulations” for the purposes of this Act and of other legislation. This allows other legislation to refer more briefly and naturally to “PAYE regulations” rather than to “regulations made under section 684 of the Income Tax (Earnings and Pensions) Act 2003”.

2753.This section omits as unnecessary the provision in section 203(1) that deductions are to be made from payments “notwithstanding that when payment is made no assessment has been made in respect of the income”. See Note 57 in Annex 2.

2754.Section 203(3A) is also omitted from this section as unnecessary. Section 203(3A) is a transitional rule from the introduction of independent taxation in FA 1988. It cannot affect any tax year to which this Act applies.

Section 685: Tax tables

2755.This section requires the Board to produce tax tables for PAYE which aim to collect the right tax for the tax year. It derives from section 203(6), (7) and (8) of ICTA.

2756.Subsection (1) requires the Board to produce tax tables which, where possible, result in:

  • tax on PAYE income for a year being deducted from PAYE income paid during that year; and

  • even deductions of tax through the year so, for example, a twelfth of the total tax estimated to be due for the year is collected after one month, a sixth of the (possibly revised) total tax is collected after two months, and so on.

2757.The main practical effect of subsection (2) is to collect underpayments through PAYE rather than by the taxpayer making a lump sum payment.

2758.Subsection (3) provides that, in trying to collect tax evenly, it can be assumed that the rate of past payments in the tax year is a guide to the rate of future payments.

Section 686: Meaning of “payment”

2759.This section deals with the meaning of “payment” in this Part. It derives from section 203A and part of section 202B of ICTA.

2760.Section 203A was introduced in 1989 as part of the package of changes dealing with the switch to a receipts basis of assessment. Prior to 1989 income under Cases I and II of Schedule E was assessed on an arising basis, whereas PAYE deductions were made when the emoluments were paid. The 1989 reforms made the emoluments assessable at the same time that they were paid for PAYE purposes. They provided :

  • a definition of receipt in section 202B of ICTA to determine the time that emoluments were assessable, and

  • a definition of payment in section 203A of ICTA.

2761.These definitions are essentially the same. This section therefore matches section 18, which derives from section 202B.

2762.In consultation leading up to this Act some users said that the heading of the section was inappropriate because it deals only with the timing of a payment. The section reproduces the heading from section 203A. It is on close examination appropriate. Section 203A and this section are not only giving the time of a payment. They also make some things which would not be payments into payments for PAYE purposes. A simple example is where an employee is entitled to collect a bonus of £1,000 on Monday. That is a payment for PAYE purposes on Monday even if the employee does not get around to collecting the money until later.

2763.Subsection (1) provides that for the purposes of the PAYE regulations, any payment of (or on account of) PAYE income is a payment for PAYE purposes at the earliest time given by any of the dates derived from the rules given.

2764.Rule 3 derives from section 203A(2), and Rule 3(a) from section 203A(4).

2765.Subsection (2) provides that a person is treated as a director for the purposes of rule 3 in subsection (1) if he or she is a director at any time during the tax year.

2766.Subsections (3) and (4) derive from section 203A(5), and from section 202B(5) and (6). In section 203A(5) reference is made to the definition of director in section 202B(5) and (6). It is more helpful to readers to repeat the definition here.

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