Smart H&S Ltd v The Commissioners for HMRC

The form of the hearing was V (video). We heard Mr Ian Hallam for the Appellant and Ms Lucy Lawrence, Litigator of HM Revenue and Customs’ Solicitor’s Office for the Respondents. The form of the hearing was V (video). The documents to which we were referred are 349-page documents bundle (which included relevant legislation, witness statements of Ian Hallam and Valerie Wescott and HMRC’s statement of case), HMRC’s Skeleton Argument. We were also referred to 2 decisions of the Tribunal.

Prior notice of the hearing had been published on the gov.uk website, with information about how representatives of the media or members of the public could apply to join the hearing remotely in order to observe the proceedings. As such, the hearing was held in public.

Smart H&L Ltd (‘Smart’) is appealing against HMRC’s assessment dated 11 January 2023 pursuant to Paragraph 9 Schedule to the Finance Act 2020 in the amount of £18,236.80. The relevant tax period is year ending 5 April 2021.  

HMRC contend that, following a review, the correct amount should be £18,335.60 and it seeks a finding to that effect.  

The assessment was issued based on payments received by Smart under the Coronavirus Job Retention Scheme (‘CJRS’) as introduced by the Coronavirus Act 2020. HMRC contend that Smart received payments under CJRS between the period of 1 November 2020 to 31 March 2021 which it was not entitled to.  

The background facts of this appeal are broadly agreed.  

Smart is run and managed by Directors Ian Hallam and Joshua Yardley who were also its directors for the relevant period.  

Smart is involved in the sale of a variety of goods. It made claims under CJRS in relation to both directors from the period of 1 April 2020 to 31 March 2021. 

On 8 September 2022, HMRC initiated an enquiry into the payments claimed by Smart. Smart co-operated and provided information and documentation via its bookkeeper, Julia Wylie of Cloud Booking.  

On 8 November 2022 Smart was notified by HMRC that they had found errors, and had recalculated the payments that should have been claimed.  

Cloud Booking took responsibility for the erroneous claims and provided email correspondence which purported to explain the error.  

Cloud Booking explained that any error that any taken place had occurred because it did it did not see an email from director, Ian Hallam dated 5 November 2021 prior to processing payroll for October 2021. This email asked for salaries for each director to be increased to £3,250.00 from 1 October 2020.  

HMRC maintained its position and stated an over payment had been claimed. An Assessment was made by HMRC on 10 January 2023 with Smart being informed by letter on 11 January 2023.  

Smart requested an independent review on 28 February 2023. HMRC maintained its stance. A further review was requested with a review conclusion letter being issued on 15 May 2023. It was in this final review that HMRC increased the amount of overpayment from £18,236.80 to £18.335.60. 

Smart appealed to this Tribunal on 16 June 2023. 

The only issue in dispute between the parties is HMRC’s assessment of the qualifying amounts claimed being excessive from 01 November 2020 to 21 March 2021.  

HMRC contend that amount of salary (reference payment) used when calculating a CJRS claim should be the employee’s salary for the period ending on or before 19 March 2020. This would amount to £719.00 for each director in this case.  

Smart contends that the reference payment should be the salary of the employee at the time of the claims being made, this being £3,250.00 per director.  

An analysis of the Coronavirus Directions is therefore required.  

The relevant legislation is, The Coronavirus Act 2020 Functions of Her Majesty’s Revenue and Customs (Coronavirus Job Retention Scheme) Direction, – dated 15 April 2020 (“The Coronavirus Direction”). 

Paragraph 2 of the direction succinctly explains it purpose: 

“2.1The purpose of CJRS is to provide for payments to be made to employers on a claim made in respect of them incurring costs of employment in respect of furloughed employees arising from the health, social and economic emergency in the United Kingdom resulting from coronavirus and coronavirus disease.  

2.2

Integral to the purpose of CJRS is that the amounts paid to an employer pursuant to a claim under CJRS are only made by way of reimbursement of the expenditure described in paragraph 8.1 incurred or to be incurred by the employer in respect of the employee to which the claim relates.” 

Whilst the wording for the purpose was amended over the various amendments, the intention of supporting employers remained through-out. 

Regard is had to the following paragraphs which explain the way request for payments were to be calculated: 

“7.1

Costs of employment meet the conditions in this paragraph if- 

(a)

they relate to the payment of earnings to an employee during a period in which the employee is furloughed, and  

(b)

the employee is being paid-  

(i)

£2500 or more per month (or, if the employee is paid daily or on some other periodic basis, the appropriate pro-rata), or  

(ii)

where the employee is being paid less than the amounts set out in paragraph 7.1(b)(i), the employee is being paid an amount equal to at least 80% of the employee’s reference salary.  

7.2

Except in relation to a fixed rate employee, the reference salary of an employee or a person treated as an employee for the purposes of CJRS by virtue of paragraph 13.3(a) (member of a limited liability partnership) is the greater of-  

(a)

the average monthly (or daily or other appropriate pro-rata) amount paid to the employee for the period comprising the tax year 2019-20 (or, if less, the period of employment) before the period of furlough began, and  

(b)

the actual amount paid to the employee in the corresponding calendar period in the previous year.   

7.3

In calculating the employee’s reference salary for the purposes of paragraphs 7.2 and 7.7, no account is to be taken of anything which is not regular salary or wages.  

7.4

In paragraph 7.3 “regular” in relation to salary or wages means so much of the amount of the salary or wages as-  

(a)

cannot vary according to any of the relevant matters described in paragraph 7.5 except where the variation in the amount arises as described in paragraph 7.4(d),  

(b)

is not conditional on any matter,  

(c)

is not a benefit of any other kind, and  

(d)

arises from a legally enforceable agreement, understanding, scheme, transaction or series of transactions. 

… 

7.7

The reference salary of a fixed rate employee is the amount payable to the employee in the latest salary period ending on or before 19 March 2020 (but disregarding anything which is not regular salary or wages as described in paragraph 7.3) (emphasis added).” 

The Coronavirus Direction was updated a few times in varying ways; however, the reference salary date remained as 19 March 2020 until the amendments of 12 November 2020 (the “Fifth Coronavirus Direction”), the relevant parts of which provided:  

“11.1

Paragraphs 11.2 and 11.8 determine an employee’s relevant reference day for the purposes of an employee’s reference salary and usual hours.  

11.2

The relevant reference day in relation to an employee to whom paragraph 11.3 or paragraph 11.5 applies is 19 March 2020.  

11.3

This paragraph applies to an employee if-  

(a)

the employer making the CJRS claim made a payment (“the payment”) to the employee,  

(b)

the payment was reported to HMRC pursuant to paragraph 22 of Schedule A1 to the PAYE Regulations in a return that the employer is required to deliver in accordance with regulations 67B or 67D of those Regulations, and  

(c)

the return mentioned in paragraph 11.3(b) was delivered to HMRC on or before 19 March 2020.  

11.4

In determining whether paragraph 11.3 applies to an employee-  

(a)

a return is delivered to HMRC on the day that the return is received by HMRC;  

(b)

a payment made to an employee reported to HMRC in a return delivered to HMRC on or before 19 March 2020 must be disregarded if-  

(i)

the employee’s employer has reported to HMRC a cessation of the employee’s employment,  

(ii)

the cessation of the employee’s employment occurred after the making of the payment, and  

(iii)

the cessation of the employee’s employment occurred on or before 23 September 2020. 

11.5

This paragraph applies to an employee if the employee’s employer- 

(a)

has made a CJRS claim in relation to the employee by virtue of a relevant provision, and 

(b)

has not reported to HMRC a relevant cessation of the employee’s employment. 

11.6

The following are relevant provisions for the purposes of paragraph 11.5(a)- 

(a)

paragraphs 9.1 to 11.3 of the first CJRS direction; 

(b)

paragraphs 9.1 to 11.3 of the second CJRS direction; 

(c)

paragraphs 37.1 to 39.3 of the third CJRS direction. 

11.7

For the purposes of paragraph 11.5(b), a cessation of an employee’s employment is a relevant cessation of an employee’s employment if it occurred- 

(a)

after the period covered by the CJRS claim mentioned in paragraph 11.5(a) (or the latest of such claims if more than one has been made), and 

(b)

on or before 23 September 2020. 

11.8

The relevant reference day in relation to an employee to whom neither paragraph 11.3 nor paragraph 11.5 applies is 30 October 2020.” 

We heard evidence from Julia Wylie and Harriette Disdale of Cloud Booking on behalf of Smart. Their evidence was based on the missed email from Ian Hallam on 5 November 2020 which had directed them to prepare necessary payroll documentation, including CJRS claims from 1 October 2020. The email confirmed that the directors would be increasing their salaries to £3,250.00 per month.  

Ms Wylie confirmed that the directors received £719.00 on 19 March 2020 by way of salary with other income being withdrawn from the company via dividends.  

The rest of Ms Wylie’s evidence was based around the email from Ian Hallam on 5 November 2020. 

Ms Disdale confirmed that she was furloughed for much of the relevant period and had little involvement with Smart and their CJRS claims.  

We found both witnesses to be honest in their evidence and have taken their account on face value. We note that their account is not disputed by HMRC.  

Ms Valerie Westcott, an officer for HMRC gave evidence on behalf of HMRC. Ms Westcott assisted the tribunal in explaining the error that had been made by Ms McNulty in her review of 11 January 2023. Her evidence was that the initial claims made were correct as the reference date used was 19 March 2020 when each director was receiving £719.00 as a salary.  

This was increased slightly in September 2020 and October 2020 to £732.00. The second lock down began on 1 November 2020. For any new employee the correct reference date would have been 30 October 2020 based on the Coronavirus Directions. However, as each director was already registered for CJRS the correct reference date should have been 19 March 2020. 

HMRC submit that it is irrelevant the £3,250.00 return was submitted before or after October 2020 as the reference salary remained at £719.00 at all times on the basis that the reference date was and remained 19 March 2020 for the directors’ salaries.  

It is further submitted that CJRS does not cover the increase, and this is something that company must cover itself.  

We agree with HMRC’s interpretation of the legislation as is affirmed by the Upper Tribunal in Bandstream Media and Corporate Communications Ltd [2024] TC 09016 at paragraph 26 – 28: 

“[26] It is our view that the purpose of the legislation is, as submitted by HMRC, to cater for the situation which has been suggested by them, at [23] above. It was not intended to allow an employer, after the introduction of the scheme, to inflate an employeeʼs wages and thus, effectively, have the taxpayer underwrite an employeeʼs salary. This would drive a coach and horses through the legislation which was designed to fix an employeeʼs salary to that recorded on the latest RTI submission prior to 19 March 2020. To interpret the legislation otherwise would lead to an injustice. 

[27] Furthermore, notwithstanding the televised debates witnessed by Mr Tann, we cannot allow that to influence our interpretation of the clear language of the statutory provisions. We must look at the actual words used by the legislation and cannot (save in exceptional circumstances which do not apply here) consider the parliamentary debates which preceded the enactment of that legislation. 

[28] So, for the purposes of this appeal, it is our view that paragraph 7.12 does not allow the appellant to claim support payments on the increased salary of £2,500 which it made to Mr Smith during the periods under assessment.” 

 We have seen evidence which clearly shows that the RTI information for each director as at 19 March 2020, was that each director was receiving a salary of £719.00. This is not disputed by Smart. It was not possible for employers to adjust salaries after this date to permit an increased claim under CJRS. 

The Fifth Coronavirus Direction was issued at the beginning of what is commonly known as the second lockdown. Paragraph 11 of the Fifth Coronavirus Direction reaffirms the reference date as being 19 March 2020 (paragraph 11.2) for those in employment on that date (paragraph 11.3). 

Paragraph 11.8 makes it clear that for those whom paragraph 11.3 did not apply, in other words, for those who were not in employment with the company on 19 March 2020, the reference date was to be 30 October 2020.  

As discussed above, both directors were employed immediately before 19 March 2020 and as such this date remained the correct reference date for the purpose of CJRS claims. The initial reviewing officer had erred in permitting the two claims made for a reference salary of £732.00. 

For the reasons stated above, Smart’s appeal is dismissed. 

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.