Commentary on Sections Example 3 £150(Pe) – £50(E) = £100 Section 222: Payments by employer on account of tax where deduction not possible
884.This section derives from section 144A of ICTA, which was part of a series of provisions intended to counter difficulties in the application of PAYE where an employee was “paid” in a readily convertible asset eg a gold bar. Many of the provisions made changes to the PAYE vires. Broadly the effect of the changes was to treat the employer as making a payment equal to the amount of income represented by the readily convertible asset. These deemed payments are known as “notional payments” and the PAYE rules apply to them as they do to straightforward cash payments.
885.This particular section deals with one of the consequences of imposing PAYE on “notional payments”. It would not always be possible to “deduct” tax from such “notional payments” and PAYE tax may well be accounted for separately. In order to prevent the employee obtaining a tax advantage it is necessary to adjust the employee’s tax liability. If the employee does not reimburse the employer in respect of that liability within 30 days the section imposes an additional liability on the employee receiving the “notional payment”. The basic conditions for the section to apply are set out in subsection (1), which derives from section 144A(1) of ICTA. The PAYE provisions in Part 11 of this Act, as referred to in subsection (1)(a), omit those that are not about notional payments or contain only definitions.
886.Subsection (2) specifies that the amount of income tax due in respect of the notional payment is treated as earnings from the employment. It therefore reflects the amendment to section 144A(1) of ICTA made by paragraph 4 of Schedule 6 to FA 2002.
887.Subsection (3) derives from section 144A(2) of ICTA. The list of provisions referred to here matches those mentioned in subsection (1)(a) and (1)(b).