Income Tax (Earnings and Pensions) Act 2003 section 223

Payments on account of director's tax other than by the director

Section 223 prevents a tax advantage arising where a company pays a director's earnings without deducting the full PAYE due, and then separately accounts for the tax to HMRC on the director's behalf.

• Where PAYE is not fully deducted from a director's earnings and the shortfall is accounted for to HMRC by the payer or another person, that shortfall is treated as additional taxable earnings of the director.
• The additional earnings are charged in the tax year in which the tax is accounted for to HMRC, unless the directorship has already ended in an earlier year, in which case the charge falls in the year the employment ceased.
• The amount treated as additional earnings is reduced by any tax actually deducted from the original payment and by any amount the director reimburses, and any tax accounted for after the director's death is disregarded.
• The section does not apply where the director has no material interest in the company and is either a full-time working director or the company is non-profit-making or charitable.