[2013] UKFTT 341 (TC)
TC02744
Appeal number: TC
2012/05822
INCOME TAX – PAYE – Regulation 72(5) direction –
Appeal against refusal to make direction – Failure of Appellant to make proper
deductions – Whether Appellant had taken reasonable care to comply with
regulations – No – appeal dismissed
FIRST-TIER TRIBUNAL
TAX CHAMBER
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PORTSLADE DENTAL
CARE LIMITED
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Appellant
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- and -
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THE
COMMISSIONERS FOR HER MAJESTY’S
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Respondents
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REVENUE &
CUSTOMS
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TRIBUNAL:
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SIR STEPHEN OLIVER QC
NIGEL COLLARD
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Sitting in public in Brighton on 18 March 2013
No appearance for the Appellant
PA Reeve for the Respondents
© CROWN COPYRIGHT
2013
DECISION
1.
This is an appeal against a decision of HMRC not to make a direction
under Regulation 72(5) of the Income Tax (Pay as You Earn) Regulations 2003
(“the Regulations”) in respect of tax that the Appellant had been required to
deduct from payments to an employee in the tax years 2008/09 and 2009/10.
2.
The underdeduction for 2008/09 had been £250.80 and for 2019/10 it had
been £912.20.
3.
The Tribunal was informed, before the hearing, that the Appellant would
neither attend nor be represented at the hearing. HMRC were represented. The
Tribunal decided to go ahead and decide the appeal on the basis of material
provided in exchanges of correspondence between the parties. Following the
hearing, the Tribunal issued a written summary of its decision to refuse the
appeal. The Appellant has asked for a full decision setting out the facts and
the reasons.
The Facts
4.
The facts are drawn entirely from the formal notices and the
correspondence provided by HMRC and the payroll agents (i.e. the new agents
referred to in paragraph 6 below). We received no direct evidence from the
Appellant itself.
5.
The underdeducted tax relates to the emolument of a Mrs Corcoran, a member
of the Appellant’s staff at the time relevant to this appeal. Her employment
had started on 1 June 2007.
6.
Until August 2008, the Appellant had used an agent to manage its payroll
responsibilities. As from September of that year the Appellants had replaced
the old agents with a new firm (chartered accountants) which took on all the
payroll and compliance responsibilities.
7.
On 18 September 2008, HMRC issued tax code (manual code type) details
relating to Mrs Corcoran for 2008/09. The code was 256L. The details were
addressed to the Appellant. The new agents stated, in a letter of 29 March
2011, that they had never seen notification of the adjusted tax coding for
2008/09 and that the Appellant had not realised that the new agents would need
a paper copy of the tax code. For that reason, said the agents, they had not
adjusted Mrs Corcoran’s PAYE. The new agents suggested that the details of the
tax coding might have been sent to the old agents.
8.
We see no alternative but to find as a fact that the tax code details
for the year 2008/09 were issued by HMRC to the Appellant and that they were
not passed on by the Appellant to its new agent. The document containing the
tax code details for Mrs Corcoran bears the date 18 September 2008 and it shows
the Appellant as the employer. Nothing on the face of that document shows that
it was sent to an agent. Moreover, as already observed, the new agent has
written that it has not seen the document. There is no evidence to displace
those apparent facts. It was open to the
Appellant to produce its own records. At the time of the
change-over to the new agents the Appellant might have assembled a list of its
employees who were under the PAYE system. It might have had a system for
recording the receipt of PAYE notices for all its staff and the manner in which
they were dealt with (e.g. by forwarding them to the new agents). As it was,
the Appellant itself chose not to attend the hearing and give evidence or by
any other means to substantiate its and the new agents’ assertions. On that
basis, we conclude that the tax coding details relating to Mrs Corcoran for
2008/09 were sent to the Appellant which did not forward them to their new
agents.
9.
The tax code details for 2009/10 show a tax code of 46L being the annual
coding. The employer is recorded as the Appellant and the notice from HMRC was
issued on 8 February 2009. The new agent, in its letter to HMRC of 29 March
2011, states that it did not receive a paper copy of the details from the
Appellant; nor did it receive e-communications from HMRC. The new agent said
that it had not received notification of Mrs Corcoran’s tax coding until
January 2010. Here again, the evidence is all one way. There are no records
kept by the Appellant to indicate, e.g., that it had received the tax code
details for Mrs Corcoran and forwarded them to the new agents. No one came to
give evidence on behalf of the Appellants. We are bound, therefore, to accept
the account given by their new agents in the course of correspondence.
The Law
10.
Regulation 68 of the Regulations provides that employers must pay over
to HMRC all the tax that they are liable to deduct. The employee is made
responsible for any underdeducted tax and can only be relieved of this
liability if it can satisfy HMRC that it had taken reasonable care to comply
with the Regulations and that the failure to deduct the excess had been due to
an error made in good faith. Where those conditions are satisfied, HMRC may
(under regulation 72(5)) direct that the employer is not liable to pay the
excess to HMRC
The Issue
11.
There is no dispute about the figures and the amount of the excess. Nor
is there any suggestion that the Appellant’s error was made otherwise than in
good faith. The only question, therefore, is whether the Appellant had taken
reasonable care to comply with the PAYE Regulations.
12.
The facts that we have found show that the Appellant failed twice in
succession to pass on to its payroll agent the tax code details relating to Mrs
Corcoran. Non-compliance with the Regulations, in the form of underdeduction of
tax and underpayment to HMRC, was the direct consequence. The only way the
Appellant can avoid liability for the excess is to satisfy HMRC, or this
Tribunal on appeal, that it had taken reasonable care to comply and, despite
that, an underdeduction and an underpayment had resulted. No evidence has been
adduced that in any way
demonstrates reasonable care on the part of the
Appellant. The Appellant has not shown any system that had been in place as a
means of handling its tax compliance obligations. It has not produced any
relevant records of its own. It is in any event reasonable to expect that, on a
changeover of payroll agents, an employer would have taken more than usual care
to ensure that all relevant material regarding each employee’s PAYE coding was
drawn to the attention of the new agent. Moreover, the coding details relating
to Mrs Corcoran issued in February 2009, were provided by HMRC at a time of the
year when many of the other employees of the Appellant must have been affected
by new coding notices; had there been even a rudimentary record-keeping system
within the Appellant, the fact that Mrs Corcoran’s details were not being
passed on to the new agents should have shown up.
Conclusion
13.
For the reasons given above we do not think that the Appellant can rely
on Regulation 72(5). We therefore dismiss the appeal.
14.
This document contains full findings of fact and reasons for the
decision. Any party dissatisfied with this decision has a right to apply for
permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure
(First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be
received by this Tribunal not later than 56 days after this decision is sent to
that party. The parties are referred to “Guidance to accompany a Decision from
the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this
decision notice.
SIR STEPHEN OLIVER
QC
TRIBUNAL JUDGE
RELEASE DATE: 10 June 2013
