Tax Tip Week 14 - Why regulation 72 is important for IR35
Annually on the 19th May, companies or persons that are PAYE registered are obliged to file a P35 return with HMRC. Professional Contractors and Freelancers who are trading inside IR35 have to declare the PAYE deducted on the deemed payment by this deadline.
As both a Director and/or an employee of a Limited Company many Professional Contractors and Freelancers do not realise that they could be personally liable to repay hundreds of thousands of pounds worth of PAYE; subject to a Direction under Regulation & 72(5) Condition A or B being applied.
HMRC state that:
"As an employer you have a legal obligation to operate PAYE on the payments you make to your employees if their earnings reach the National Insurance Lower Earnings Limit (LEL). For the tax year 2009-10 this is £95 a week, £412 a month or £4,940 a year".
What happens if a company has declared the wrong amounts?
If HMRC find that the wrong amounts of Tax and NICs have been declared (or not declared ), they have 2 courses of redress ( known as Condition A and B ), two entities to address them to ( employee and Director ) and no time limits in which to apply them:
Was the under deduction an honest failure? - Regulation 72(5) Condition A
Was the under deduction a dishonest or wilful failure? - Regulation 72(5) Condition B
For the full information see our article on Regulation 72(5) Conditions A & B