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The Income Tax (Pay As You Earn) (Amendment) Regulations 2018

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Citation and commencement

1.  These Regulations may be cited as the Income Tax (Pay As You Earn) (Amendment) Regulations 2018 and come into force on 6th April 2018.

Amendment of the Income Tax (Pay As You Earn) Regulations 2003

2.  The Income Tax (Pay As You Earn) Regulations 2003(1) are amended as follows.

3.  In regulation 2 (interpretation)—

(a)in the definition of “additional rate(2)” omit “, except where the employee is a Scottish taxpayer where it means any Scottish additional rate of income tax set by a Scottish rate resolution of the Scottish Parliament under section 80C of the Scotland Act 1998”,

(b)in the definition of “higher rate(3)” omit “, except where the employee is a Scottish taxpayer where it means any Scottish higher rate of income tax set by a Scottish rate resolution of the Scottish Parliament under section 80C of the Scotland Act 1998”,

(c)after the definition of “retrospective tax provision(4)” insert—

“Scottish basic rate” means the Scottish basic rate of income tax for a tax year set by a Scottish rate resolution of the Scottish Parliament under section 80C of the Scotland Act 1998;

“Scottish lower rate” means any rate of income tax for a tax year set by a Scottish rate resolution of the Scottish Parliament under section 80C of the Scotland Act 1998 which is lower than the Scottish basic rate for that tax year, and

(d)after the definition of “Scottish taxpayer” insert—

“Scottish upper rate” means any rate of income tax for a tax year set by a Scottish rate resolution of the Scottish Parliament under section 80C of the Scotland Act 1998 which is higher than the Scottish basic rate for that tax year;.

4.  In regulation 7 (meaning of “code” etc)—

(a)in paragraph (3)—

(i)after sub-paragraph (ba) insert—

(bb)the appropriate Scottish upper rate code, which effects deductions of tax wholly at a Scottish upper rate for a Scottish taxpayer;, and

(ii)for sub-paragraph (ca) substitute—

(ca)the 0T code, which without allowing for personal allowances, effects deductions of tax so that during the tax year the amounts subject to deductions are in accordance with section 10 of ITA (income charged at the basic, higher and additional rates: individuals) or section 11A of ITA (income charged at Scottish rates);, and

(b)in paragraph (4), before “blind person’s allowance” insert—

“appropriate Scottish upper rate code” means a Scottish upper rate code which effects deductions of tax from an employee who is a Scottish taxpayer at a Scottish upper rate which is considered by HMRC to apply where they have reason to believe that the employee will be chargeable at that rate on all or a substantial part of the employee’s relevant payments;.

5.  In regulation 15 (flat rate codes)—

(a)after paragraph (2) insert—

(2A) HMRC may determine that the code for use by an employer in respect of an employee who is a Scottish taxpayer is an appropriate Scottish upper rate code if they have reason to believe that the employee will be chargeable at a Scottish upper rate on all or a substantial part of the employee’s relevant payments., and

(b)after paragraph (4) insert—

(4A) For the purposes of this regulation an “appropriate Scottish upper rate code” has the meaning given in regulation 7(4)..

6.  After regulation 32A(5) (additional rate code: deductions) insert—

Scottish upper rate codes

32B.(1) If the employee’s code is an appropriate Scottish upper rate code the employer must deduct tax at the Scottish upper rate specified in that code and regulations 22 and 26 (cumulative and non-cumulative basis) do not apply.

(2) For the purposes of this regulation an “appropriate Scottish upper rate code” has the meaning given in regulation 7(4)..

7.  In regulation 105 (Inland Revenue and employer may make PSA)—

(a)in the heading for “Inland Revenue” substitute “HMRC”,

(b)in paragraph (1)—

(i)for “The Inland Revenue” substitute “HMRC”, and

(ii)after “for a tax year” insert “and for any subsequent tax years.”,

(c)in paragraph (2)(a) for the words “the Board of Inland Revenue” substitute “HMRC”, and

(d)after paragraph (3) insert—

(4) A PSA will continue to have effect until cancelled..

8.  In regulation 107 (effect of PSA)(6)—

(a)in paragraph (1) for “year” substitute “years”,

(b)in paragraph (3) for “the Board of Inland Revenue” substitute “HMRC”, and

(c)in paragraph (6) for “inspection” substitute “retention”.

9.  In regulation 108 (calculation of tax payable under PSA)(7)—

(a)for paragraph (1) substitute—

(1) A PSA must provide that the employer is accountable to HMRC for the income tax due.,

(b)after paragraph (1) insert—

(1A) A PSA must provide for the sums due to be—

(a)computed annually in accordance with the factors specified in paragraph (2), and

(b)comprised of the amounts specified in paragraph (3),

(c)in paragraph (2)—

(i)in sub-paragraph (d)(i), for “PSA” substitute “computation”,

(ii)at the end of paragraph (iii) insert “and”, and

(iii)after paragraph (iii) insert—

(iv)at any Scottish rate(8) applicable for the tax year to which the computation relates;, and

(d)in paragraph (3), for “paragraph (1)(b)” substitute “paragraph (1A)(b)”.

10.  In regulation 109 (payment of tax and recovery proceedings)(9)—

(a)In paragraph (1)—

(i)for “the Inland Revenue” substitute “HMRC”,

(ii)for “the Board of Inland Revenue” substitute “HMRC”, and

(iii)after “a PSA” insert “in relation to the preceding tax year”, and

(b)in paragraph (2)—

(i)for “the tax year” substitute “each tax year”, and

(ii)for “PSA” substitute “computation”.

11.  In regulation 111 (form of PSA)—

(a)in paragraph (1)(b) for “the Inland Revenue” substitute “HMRC”, and

(b)after paragraph (2) insert—

(3) In paragraph (1) “in writing” includes electronic communications and “signed” includes electronic signatures..

12.  In regulation 112 (commencement of PSA) in paragraph (1) after “end of the” insert “first”.

13.  In regulation 113 (variation of PSA)—

(a)in paragraph (1) for “The Inland Revenue” substitute “HMRC”,

(b)in paragraph (2) for “the Inland Revenue” substitute “HMRC”,

(c)in paragraph (3)—

(i)after “end of the” insert “first tax year to which the variation relates”, and

(ii)omit “tax year to which it relates”.

(d)after paragraph (3) insert—

(4) In paragraph (2) “in writing” includes electronic communications and “signed” includes electronic signatures..

14.  In regulation 114 (cancellation of PSA)—

(a)for the words in paragraph (1) substitute—

(1) Either HMRC or the employer may cancel a PSA.,

(b)in paragraph (2) for “notice to the employer” substitute “a notice in writing to the other party”, and

(c)after paragraph (4) insert—

(5) In paragraph (2) “in writing” includes electronic communications..

15.  In regulation 116 (interest on overpaid tax)—

(a)in paragraph (1) for “the tax year” substitute “a tax year”, and

(b)in paragraph (2) (a) after “due date” insert “for a tax year”.

16.  In regulation 117 (inspection of PSA records)—

(a)in the heading for “Inspection” substitute “Retention”,

(b)for paragraph (1) substitute—

(1) An employer must keep PSA records for not less than 3 years after the end of the most recent tax year to which they relate.,

(c)in paragraph (2)—

(i)in sub-paragraph (b) for “the Board of Inland Revenue” substitute “HMRC”,

(ii)in sub-paragraph (c) for “the Inland Revenue” substitute “HMRC”, and

(d)omit paragraphs (3), (4), (5), (6),(7) and (8).

17.  In regulation 133A(1)(10) (interpretation of chapter 2A) omit the definitions of “basic rate”(11) and “higher rate”.

18.  In regulation 133B(2)(b) (application of other parts) for “the basic rate” substitute “20%”.

19.  In regulation 133C(1) (determination of rate of deduction)—

(a)in paragraphs (1) and (2) omit “marginal”, and

(b)in paragraph (2)(b) for “the basic rate” substitute “20%”.

20.  In regulation 133D (notification by recipient of notice of tax rate)—

(a)in paragraph (1)(b) for “the basic rate” substitute “20%”, and

(b)in paragraph (1)(c) for “the higher rate” substitute “40%”.

21.  In regulation 147B (interpretation of Part 7A)(12) for “are payable” substitute “would be payable”.

22.  In regulation 147C(2) (due date for payment of apprenticeship levy)(13) for “Part 4 and Chapter 1” substitute “Chapter 1 of Part 4”.

23.  In regulation 147L(4) (assessment of unpaid apprenticeship levy)(14) for “the TMA” substitute “TMA”.

Justin Holliday

Jim Harra

Two of the Commissioners for Her Majesty’s Revenue and Customs

28th February 2018

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