FieldworkHub Ltd v The Commissioners for HMRC

The appellant has appealed against a Determination issued on 26 October 2023 pursuant to Regulation 80 of the Income Tax (Pay as You Earn) Regulations 2003 (“the Regulations”). The Determination related to the appellant’s failure to deduct Pay as You Earn (“PAYE”) tax from the earnings of an employee (Ms S) for the tax year 2021/22.

With the consent of the parties, the hearing was conducted by video link using the Tribunal's video hearing system. 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.

The documents to which we were referred comprised a Bundle consisting of 85 pages. At the outset of the hearing, HMRC requested permission to lodge an Employment Summary for Ms S and Mr Sandhu requested permission to lodge a copy of the appellant’s letter dated 23 April 2024 requesting a review of the decision on the Determination. Both were lodged.

Officer Nicola Sturrock’s witness statement was not challenged and we heard evidence from her briefly.

Neither party had suggested that the employee whose tax was underpaid should be joined to the appeal. We agreed that that was not necessary. However, as the employee was not a party to the appeal, we also decided that it was not in the interests of justice for her to be named in this decision and have therefore referred to her as “Ms S” throughout.

The appellant is a market research participant recruitment and public opinion polling company based in London. For PAYE purposes, the appellant is a Real Time Information (“RTI”) employer.

Ms S joined the appellant on 4 January 2021 and was one of four employees plus the two directors. The appellant’s accountants, TWB Accountants Limited, managed the payroll for the appellant.

On the new employee form dated 7 January 2021, Miss S ticked a box stating “as well as my new job, I have another job …”.

On 8 February 2021, HMRC issued a tax code notice to the appellant with an effective date of 6 April 2021. The tax code was D0. That means that the higher rate of tax is applied to all income and the personal allowance was not taken into account.

A further tax code notice was issued on 22 June 2021 with an effective date of that date and it again stated that the tax code was D0.

On 13 March 2022, having received information from Ms S’s other employer, HMRC issued a further tax code notice for the same tax year with an effective date of 13 March 2022. The tax code was 887T and it stated that Ms S had previous pay of £42,385 and tax of £8,069.36 had been deducted.

In April 2022, the appellant changed accountants and those accountants used a different electronic payroll system.

Ms S left the employment of the appellant on 31 August 2022.

On 6 June 2023, HMRC wrote to the appellant at the business address held on the employer PAYE record. That letter advised that the appellant had used the tax code 887T but had not used the previous employment pay and tax figures in the payroll calculations. The appellant was instructed to send a Full Payment Submission (“FPS”) in the sum of £8,888.24 or to amend the form P35 or alternatively, if they disagreed, to provide an explanation and show how they had taken reasonable care to operate PAYE.

On 1 August 2023, following an update of the business address being intimated to HMRC, a copy of that letter was reissued to the new address.

That letter read: “It appears that you didn’t take off enough PAYE tax from the earnings paid to [Ms S] for the tax year 2021 to 2022”. Under that text was the following box:

The letter continued “We think that this is because you did not use PAYE correctly. Tax code 887T was issued to you on 11 March 2022 which included P45 figures from a previous employment. The tax code 887T was used but you did not use the previous employment’s (sic) pay and tax figure in your payroll calculations”.

On 10 August 2023, the director of the appellant replied confirming that they had investigated the matter internally. The appellant accepted that “there was a processing error” with the electronic payroll system operated by the then accountants and that error had meant that the earnings in the other employment of Ms S had not been taken into account.

The appellant explained that when Ms S joined the appellant, she was still doing some paid work for her previous employer in order to ensure an orderly handover of responsibilities to her replacement. They were not sure how long that previous employment had continued but “it certainly continued into the 2021-22 tax year”.

A P45 was not furnished when she joined the appellant and it would appear that no P45 was ever received. They had been unable to recover the tax from Ms S as they had been unaware of the underpayment because HMRC had not intimated that to them until 2023, which was after Ms S left the appellant’s employment. They asked that the underpayment be recovered from Ms S.

On 26 October 2023, HMRC issued a “Notice of Regulation 80 Determination” which stated:

“This Determination shows the amount of tax we consider is due from you as an employer. It has been made to the best of our judgement. The Notice is addressed to you as required by law, but if you have a professional adviser or agent, let him or her see it immediately.

The tax due under Regulation 67G of the Income Tax (Pay as You Earn) Regulations 2003 is shown above. This tax has not been paid to HMRC nor has HMRC certified the tax under Regulations 75A, 76, 77, 78 or 79”.

The tax due was £8,888.24.

On 14 November 2023, the appellant appealed the Determination referring to the letter of 10 August 2023 and reiterating the arguments therein.

On 19 January 2024, the appellant wrote to HMRC, who were seeking payment of the tax, pointing out that they had appealed the Determination but had had no response in relation to that employee or, indeed, in relation to a Determination in respect of another employee which they had appealed on 21 December 2023.

On 28 March 2024, HMRC responded to the letters of 14 November 2023 and 19 January 2024, noting that the underpayment had been caused by a processing error but rejecting the argument that the appellant should not be responsible for that. HMRC offered a review.

On 23 April 2024, having taken professional advice, the appellant requested a review. They asked HMRC to consider Sci-Temps Limited v HMRC [2020] UKFTT 314 (TC) (“Sci-Temps”).

They pointed out that Judge Redston had concluded that:

Therefore, because no P45 had been provided to them and the tax code notice with the details of previous pay and tax was the third such notice in the tax year, HMRC had not followed the correct process.

The appellant had exercised reasonable care and would not have expected to find unexplained figures at the end of a coding notice and would have expected the code to have included all the required adjustments.

On 26 September 2024, HMRC issued a Review Conclusion letter upholding the Determination. That letter referred to the Grounds of Appeal which were as set out in the letter of 10 August 2023 and also referred to the appellant’s request that HMRC consider the decision in Sci-Temps.

The review officer distinguished Sci-Temps on the basis that the pay and tax in that case related to a previous tax year, whereas the appellant had been aware of the fact that Ms S was still working for her previous employer whilst employed by the appellant and that had continued into the tax year 2021/2022.

The officer referred to the argument that the 877T code was the third code issued by HMRC and stated:

“However, this was the first code issued in this tax year, following a change to the employee’s circumstances”

The officer referred the appellant to HMRC’s guidance on tax code changes.

On 25 October 2024, the appeal was notified to the Tribunal.

It was argued for the appellant that they had acted in good faith and with reasonable care adhering to the earlier coding notice that did not reference any previous pay adjustments. They again relied on Sci-Temps arguing that:-

In summary, the Determination should be set aside on the basis that there was no statutory requirement to apply the previous pay adjustment or alternatively the appellant had acted with reasonable care in following the coding instructions.

Sadly, the version of Regulation 80 contained in the Bundle is the original version (as it was originally made).

I was therefore forced to locate for us the legislation in place at the relevant time. Regulation 80, as amended, reads:-

HMRC may determine the amount of that tax to the best of their judgment, and serve notice of their determination on the employer.

A determination under this regulation must not include tax in respect of which a direction under regulation 72(5) has been made; and directions under that regulation do not apply to tax determined under this regulation.

A determination under this regulation may—

A determination under this regulation is subject to Parts 4, 5 and 6 of TMA (assessment, appeals, collection and recovery) as if—

…”.

Regulation 67G was in the Bundle and it reads:-

“67G Payments to and recoveries from HMRC for each period by Real Time Information employers

(1)

For each tax period, a Real Time Information employer must pay to, or may recover from, HMRC the amount arrived at under the formula in paragraph (4).

(2)

If the amount arrived at under the formula in paragraph (4) is a positive amount, the employer must pay the excess to HMRC.

(3)

If the amount arrived at under the formula in paragraph (4) is a negative amount, the employer may recover that amount either—

(a)

by deducting it from the amount which the employer is liable to pay under paragraph (2) for a later period in the tax year, or

(b)

from the Commissioners for Her Majesty’s Revenue and Customs.

(3A) Where a return for a tax period contains a correction under regulation 67E(5) (returns under regulations 67B and 67D: amendments) and paragraph (3) of this regulation applies, the negative amount is treated as having been paid to HMRC—

(a)

17 days after the end of the tax period in respect to which that return is delivered, where payment is made using an approved method of electronic communications, or

(b)

14 days after the end of the tax period in respect of which that return is delivered, in any other case.

(4)

The formula in this paragraph is A-B, where—

A is the sum total of the relevant amounts for each of the employer’s employees, and

B is amount A for the previous tax period in the tax year, if any.

(5)

For the purposes of paragraph (4), a “relevant amount” is the amount shown under paragraph 17 of Schedule A1 (real time returns) for an employee in the most recent return made in the tax year by the employer under regulation 67B (real time returns of information about relevant payments) or 67D (exceptions to regulation 67B) which contains information about that employee.

(5A) If the employer makes a return under regulation 67EA(3) (failure to make a return under regulation 67B or 67D) a “relevant amount” for the purposes of paragraph (4) is the amount shown under paragraph 17 of Schedule A1 (real time returns) for an employee in that return for the tax year to which that return relates.

(6)

In paragraph (5) “the most recent return” means the return which, as at the end of the tax period, contains the most up to date information under paragraph 17 of Schedule A1 about the employee.

(7)

This regulation is subject to regulations 67H (payments to and recoveries from HMRC for each tax period by Real Time Information employers: returns under regulation 67E(6)), 71 (modification of regulations 67G and 68 in case of trade dispute) and 75B (certificates under regulation 75A: excess payments.”

Paragraph 17 of Schedule A1 of the Regulations reads:

“The total net tax deducted in relation to the total payments to date in this employment”.

Part V of the Taxes Management Act 1970 (“TMA”) to which Regulation 80(5) refers includes section 50, and that section therefore applies to the Determination. It provides, so far as relevant to this case, as follows:

“(6)

If, on an appeal notified to the tribunal, the tribunal decides

(a)-(b)…

(c)

that the appellant is overcharged by an assessment other than a self-assessment,

the assessment…shall be reduced accordingly, but otherwise the assessment…shall stand good.

(7)

If, on an appeal notified to the tribunal, the tribunal decides

(a)-(b) …

(c)

that the appellant is undercharged by an assessment other than a self-assessment, the assessment…shall be increased accordingly.”

The Tribunal therefore has the duty to decide whether the appellant has been overcharged by the Determination, undercharged by the Determination, or neither, and to reduce, increase or confirm the Determination in consequence.

Regrettably, Regulation 53 was not in the Bundle, and since there was no P45 provided to the appellant in this case, it is relevant. It reads:

“No Form P45: subsequent procedure on issue of employee’s code

53—(1) On making any relevant payment to an employee falling within regulation 47 to 49E (procedure where no Form P45) after the Inland Revenue have issued a code to the employer for use in respect of the employee, the employer must deduct or repay tax by reference to that code.

(2)

For the purposes of paragraph (1) and regulation 66 (deductions working sheets)—

(a)

any total payments to date notified to the employer by the Inland Revenue are treated as if they represented relevant payments made by the employer; and

(b)

the total net tax deducted before the first payment made in accordance with this regulation is taken to be the sum of—

(i)

the total net tax deducted, if any, notified to the employer by the Inland Revenue, and

(ii)

any tax which the employer was liable to deduct from the employee’s relevant payments under regulation 47, 48, 49, 49C, 49D or 49E.

(3)

For the purposes of—

(a)

item 8 of Table 2 in regulation 36(4) (Form P45), and

(b)

regulation 55(4)(f) (Form P46)(Pen))

any total payments to date and total net tax deducted which are notified to the employer by the Inland Revenue must be treated as if they were relevant payments made to the employee by, and tax deducted by, the employer.

(4)

If the employee’s previous code was used on the cumulative basis, any amount notified to the employer under paragraph (2)(b)(i) must be added to the previous total tax to date for the purposes of regulation 23(8) (cumulative basis: meaning of previous total tax to date)”.

The appellant relies on the argument that it took reasonable care and acted in good faith. That is because Regulation 72 reads:

“Recovery from employee of tax not deducted by employer

(1)

This regulation applies if—

(a)

it appears to the Inland Revenue that the deductible amount exceeds the amount actually deducted, and

(b)

condition A or B is met.

(2)

In this regulation…

‘the deductible amount’ is the amount which an employer was liable to deduct from relevant payments made to an employee in a tax period;

‘the amount actually deducted’ is the amount actually deducted by the employer from relevant payments made to that employee during that tax period;

‘the excess’ means the amount by which the deductible amount exceeds the amount actually deducted.

(3)

Condition A is that the employer satisfies the Inland Revenue—

(a)

that the employer took reasonable care to comply with these Regulations, and

(b)

that the failure to deduct the excess was due to an error made in good faith.

(4)

Condition B is that….

(5)

The Inland Revenue may direct that the employer is not liable to pay the excess to the Inland Revenue.

(5A) Any direction under paragraph (5) must be made by notice (‘the direction notice’), stating the date the notice was issued, to—

(a)

the employer and the employee if condition A is met; …

(b)

the employee if condition B is met.

(5B) A notice need not be issued to the employee under paragraph (5A)(a) if neither the Inland Revenue nor the employer are aware of the employee's address or last known address…”.

The employment summary for Ms S that was furnished to the Tribunal disclosed that she had commenced working for her other employer on 1 October 2020 and left that employment on 31 December 2021. She commenced work with the appellant on 4 January 2021 and left that employment on 31 August 2022. We accepted the submission for the appellant, which is consistent with the correspondence, that the appellant had not known when Ms S terminated her previous employment and had not anticipated that it would have lasted as long as it clearly did. That was not a mere “handover” as the appellant had been led to believe.

Undoubtedly there was an underpayment of tax and the figure of £8,888 was not challenged.

We agree with, and adopt, Judge Redston’s analysis of the Regulations about codes at paragraphs 50 to 59 of Sci-Temps. In particular, we agree with her conclusion at paragraph 57 to the effect that:

“57.

The above provisions require the employer to use the ‘code’ provided by HMRC when making any payment of earnings to an employee. It is clear from Regs 1, 7 and 8 that the ‘code’ is ‘a combination of letters, numbers or both’ or ‘one of the special codes, whether expressed in words or represented by a combination of letters, numbers or both’. The information about ‘previous pay and tax details’ is not part of the ‘code’”.

We note from the P11 Deductions Working Sheets that for the three pay periods in the tax year 2020/21 the appellant applied the tax code BR, for the first 11 pay periods in the tax year 2021/22 the appellant applied the tax code DO and for the twelfth the tax code 877T.

Ms S had never furnished a P45 and indeed it would only have become available when she left the other employer on 31 December 2021 and at that point she had been in the appellant’s employ for a year.

Regulation 53 prescribes what an employer should do where there is no P45 and we referred Ms Halfpenny to Regulation 53(2)(b). We did so because HMRC had not addressed Regulation 53 and, as can be seen from paragraphs 27 and 28 above, since taking professional advice, the appellant has consistently argued that the obligation to include previous pay and tax details in the working sheets only arises where the information is provided in a P45 or HMRC furnish the information with the first tax code (ie Regulation 53(2)(b)).

In their Review Conclusion letter and at paragraph 40 of their Skeleton Argument HMRC merely said elliptically that:

“The Appellant …. says the code issued in March 2022 was the third code one (sic) in respect of the employee. The Respondents dispute this, it was in fact the first code issued in that tax year, following a change to the employee’s circumstances.”.

We disagree. The 877T tax code was indeed the third tax code issued in the 2021/22 tax year. It did not say that the previous pay and tax figures were derived from Ms S’s P45. There was no explanation of the figures. The first and second tax codes issued in the tax year contained no figures for pay or tax.

We find that the appellant did use the tax codes furnished to them by HMRC and thus complied with the Regulations in that regard.

What about the Regulation 80 Determination? HMRC argue that it was valid.

Regulation 67G provides that RTI employers, such as the appellant, must pay HMRC “the sum total of the relevant amounts” for each employee. As can be seen from paragraph 39 above, the relevant amount is “the total net tax deducted in relation to this employment” (paragraph 17 of Schedule A1). The appellant argues that that is precisely what they did as they were required only to utilise the payments actually deducted in the deductions working sheets.

However, HMRC argue that Regulation 80(1A)(a) provides that the tax payable under Regulation 67G is the tax that “the employer was liable to deduct” and that that is different to the tax actually deducted. Well, of course it can be different.

It is common ground that HMRC had not issued certificates deeming a liability to tax to arise in terms of Regulation 75A.

It is trite law but we can really do no better than to quote Lord Dunedin’s well known statement in Whitney v Commissioners of Inland Revenue [1925] UKHL TC 10 88 that:

“Now, there are three stages in the imposition of a tax: there is the declaration of liability, that is the part of the statute which determines what persons in respect of what property are liable. Next, there is the assessment. Liability does not depend on assessment. That, ex hypothesi, has already been fixed. But assessment particularises the exact sum which a person liable has to pay. Lastly, come the methods of recovery, if the person taxed does not voluntarily pay”.

In this case the Determination is the assessment which is the second stage but the problem for HMRC is that they have quite simply failed to establish that the appellant was liable to include the pay and tax figures from the other employment in the deductions working sheets.

Although the facts are undoubtedly different, we agree with Judge Redston at paragraph 67 of Sci-Temps that there is no legal obligation on an employer to include “previous pay” or, in this case, the “other pay” in a deductions working sheet unless either:

We therefore conclude that there was no failure to comply with the Regulations and no basis for the Determination. It was not valid. We find that the appellant was overcharged by the Determination and in terms of section 50(7) TMA we reduce the Determination to NIL and allow the appeal.

That being the case we do not require to consider whether the appellant exercised reasonable care and acted in good faith.

HMRC did not really address that beyond saying that the then accountant’s error was the responsibility of the appellant.

The appellant made brief submissions.

Had we had to address these points we would have found that:

For all these reasons the appeal is allowed and the Determination is reduced to NIL and thus set aside.

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.