Complete Solutions Europe Limited v The Commissioners for HMRC

CSEL submits that the claims for CJRS were correctly made, in particular CSEL calculated the furlough pay to the employees based on contracts agreed prior to the Covid-19 shut down and the suspension of works.

The spa engineers were fixed rate employees because they were paid a fixed rate per day when the contracts were available.

The amounts the employees were paid in March 2020 prior to their furlough should be taken into account as the employees were working on their agreed rate and were paid at month end as they always were. There was nothing in the legislation that requires the employer to have run a payroll by 19 March 2020 in that month.

HMRC’s calculations suggests that CSEL should be paid approximately £80 a week, which is not a living wage and would therefore not have been acceptable.

The CJRS was supposed to support companies to pay their employees and keep the companies afloat during the pandemic, which is exactly what CSEL did.

HMRC’s interpretation of the CJRS in this case has done exactly the opposite.

Having to repay the CJRS funds back to HMRC will put CSEL out of business.

HMRC has made repeated errors in the calculations sent to CSEL, which shows how complicated the rules were. There doesn’t appear to be any consequence for HMRC in making these errors, which is inequitable.

CSEL made further claims after the hold on claims was lifted because they understood that HMRC now accepted the position was correct. It would therefore be unfair for HMRC to claw back these amounts now.

It is helpful first to set out HMRC’s position with regards to the four different assessments and which we are expecting to consider.

With regards to Assessment 1, HMRC acknowledge that they did not have the power to cancel the assessment (as they had purported to do) and that it therefore remains live and is subject to appeal.

HMRC invite the Tribunal to vary the assessment from its original amount £70,119.60 down to £44,310.36 (which is the amount calculated by the review officer). This assessment covers the accounting period ended 28 October 2020 in tax year ending 5 April 2021.

With regards to Assessment 2, HMRC requests the Tribunal to vary this assessment to nil, on the basis that it covered the same period as Assessment 1.

With regards to Assessment 3, HMRC acknowledge that the assessment was not notified to CSEL until 18 June 2024, although it had been raised in HMRC’s systems on 28 October 2021.

It covers the accounting period ended 28 October 2021, in the tax year ending 5 April 2021 and is for an amount £51,249.68.

HMRC submit that this is a live assessment but invites the Tribunal to vary it to nil, on the basis that it covered the same period as Assessment 4.

With regards to Assessment 4, HMRC acknowledge that the correspondence they issued purporting to amend this assessment were not within HMRC’s powers and therefore the original assessment remains live in this appeal.

The assessment covers the accounting period ending 27 October 2021, for the tax year ending 5 April 2021 in the amount of £28,236.42.

HMRC invites the Tribunal to reduce this assessment to £18,311.41, which is the amount the review officer calculated.

In summary, therefore, HMRC asks this Tribunal to uphold assessments 1 and 4, but to reduce the amounts assessed to £44,310.36 and £18,311.41, giving rise to a total of £62,621.77.

HMRC acknowledge that they made the errors made in issuing, cancelling and amending assessments and apologises for the confusion caused.

However, HMRC submit that the Tribunal does not have jurisdiction over HMRC’s conduct and that therefore the appropriate action regarding complaints is to use HMRC’s complaints process, followed, if necessary, by a complaint to the ombudsman.

With regard to the question of whether HMRC misled CSEL when it allowed further claims to be submitted, HMRC submit that this was not the case, as a matter of fact, but even if it was, this would be a claim based on public law arguments of legitimate expectation, which is not within the jurisdiction of this Tribunal.

HMRC accept that CSEL was an eligible employer which had a PAYE scheme registered by 19 March 2020 in accordance with the CJRS Direction. They accept that CSEL was therefore entitled to make CJRS claims.

HMRC also accept that the five relevant employees were furloughed employees.

HMRC argue that CSEL claimed more than its qualifying costs within the CJRS Direction. This is on the basis that:

For variably paid employees HMRC submits that the reference salary should be calculated in accordance with Paragraph 7.2 of the CJRS Direction. HMRC further submits that this paragraph is clear that both methods of calculating reference salaries for variable paid employees should be based on amounts paid, not amounts to be paid.

The average amount should be calculated by averaging amounts paid to an employee between 06 April 2019 (or the day they commenced employment if they were not employed by the claimant company on 06 April 2019) and the day before they were furloughed. This could be achieved by calculating a daily, weekly or monthly wage or salary.

HMRC therefore submits in the case of CSEL employees that this period is 06 April 2019 to 22 March 2020 (being that the first claim to CJRS was from 23 March 2020).

The new wages that CSEL had agreed to pay their employees under the new contract were not paid because the employees did not start work on that project until early March 2020. Therefore, although work was started, the employees had earned the salary but had not been paid that salary.

Salaries which had been earned by the employees for work done between 01 March 2020 and 22 March 2020 on the new contract were not used or considered, because these did not form part of what the employees had been paid before they were furloughed. HMRC submits that this is the correct position based on the CJRS Direction.

Since Assessments 2 and 3 were both duplicate assessments covering the same period as Assessments 1 and 4, we exercise our power to amend these assessments to nil in accordance with section 50(8) of the Taxes Management Act 1970.

The remainder of this decision therefore deals with Assessments 1 and 4.

As noted above, there is no dispute that CSEL was a qualifying employer and that the five employees were furloughed employees. This dispute primarily centres on what the appropriate qualifying costs were for those employees.

Considering first whether the five employees were fixed rate employees. The full text of paragraph 7.6 of the CJRS Direction is set out above. Applying those sections to the five employees in question:

As a result, we find that the five employees were not fixed rate employees. The fact that there was an agreed day rate for when they did obtain work is not enough to meet the requirements under paragraph 7.6 of the CJRS Direction to be treated as fixed rate employees.

Therefore the qualifying costs for these employees must be based on their reference salary in accordance with paragraph 7.2 of the CJRS Direction.

The claims made were all based on the monthly salary that was paid to the five employees for the month of March 2020. It is clear that this was not the correct reference salary since that is neither an average salary or a corresponding month salary.

The next question to be answered then, is what the appropriate reference salary should have been.

There was some confusion at the hearing concerning the relevance of 19 March 2020 in relation to non-fixed rate employees, with HMRC asserting that it remained a relevant date. This is why written submissions were requested.

In HMRC’s written submissions they accepted that it was not relevant to calculating reference salary for non fixed-rate employees.

The reference salary must be calculated by applying paragraph 7.2 of the CJRS Direction, under which it is the greater of:

We will refer to limb a as the averaging method and limb b as the lookback method.

There is no dispute here about the use of the lookback method. However, the parties disagree about the extent to which the payments made to the employees in respect of the new contract in March 2020 can be taken into account in the averaging method.

HMRC argue that the wording of the averaging method prevents them from taking into account any of that period because it was only paid to the employees on 31 March 2020. They place reliance on the use of the phrase “amount paid” and argue that this must have been paid “before the period of furlough began”. They say that because the CJRS Direction refers only to amounts paid and not to amounts earned, it must mean only those amounts that are paid before the furlough period began.

CSEL argues that the period from the start of the contract until they were furloughed should be taken into account. They say that this pay related to work done prior to the COVID-19 restrictions came into play and pursuant to arrangements with their staff and contracts with third parties that were agreed long before that.

The letters sent in January 2020 and invoices and correspondence with the third party contractors are clear evidence that the new contract was established before the CJRS was announced (and HMRC did not dispute that). However, the question is whether the wording of paragraph 7.2 allows those payments to be taken into account.

This is a question of statutory interpretation. The key is whether the word “paid” is linked to the phrase “before the period of furlough began”.

We note that it does not refer to amounts paid “in” any given period, but rather refers to amounts paid “for” a period. In our view this intends to capture the amounts of remuneration actually paid to the employee in respect of the period in question, whenever they are in fact paid.

It then goes on to identify what the period comprises. The remainder of the sentence (leaving aside the parentheses for the moment) is: “the tax year 2019-20 before the period of furlough began”. Other than the parentheses, there is no punctuation in the sentence at all, which might indicate an intention to sever one part from the other.

Therefore in terms of plain language, the relevant period is the period from 6 April 2019 to the day before the furlough began. In this case that would be 6 April 2019 to 22 March 2020.

This is supported by how this would apply in other fact patterns:

We also do not consider that this creates an absurdity. This is one part of the calculation which is intended to capture an appropriate salary to create an average from over a reasonably long period. For some, who started employment not long before COVID-19 restrictions applied, this period would be relatively short, but for others this would capture the whole tax year. As has been said in other cases concerning CJRS, these directions were drafted extremely quickly and were intended to support employers but could not realistically have catered for every possible circumstance. However, that does not alter the words of the statute, which do not limit the reference salary to amounts that were paid prior to the reference date of 19 March 2020 nor to the date before furlough.

We also note that, included in the bundle and referred to in Officer Davies witness statement, is a piece of HMRC guidance entitled “Work out 80% of your employee’s wages”. This includes guidance and examples for employers on how HMRC suggest that calculations should be done. Under the heading “Employees whose pay varies and were employed from 6 April 2019”, guidance is given for how to work out using the averaging method:

“To work out 80% of the average monthly wages for the last tax year:

1.

Start with the amount they earned in the tax year up to the day before they were furloughed.

2.

Divide it by the number of days from the start of the tax year – including non-working days (up to the day before they were furloughed, or 5 April 2020 – whichever is earlier)

3.

Multiply by the number of furlough days in this pay period.

4.

Multiply by 80%.”

The guidance then goes on to give an example of a worker and refers to what the worker earned in the period up to the day they were placed on furlough and does not make any reference to when they were paid. It goes on to calculate the average based on the number of days in the tax year up to that point, with again no reference to when the person was paid.

For this reason, we have concluded that the reference pay under the averaging method should include all pay in respect of the period up to the date of the furlough, i.e. 22 March 2020, even though it was not paid until 31 March 2020.

In the assessment figures defended by HMRC, they agreed that for each CJRS claim, they had applied the most favourable amount for CESL, i.e. if the lookback method produced a higher claim, then this was used, whereas if the averaging method produced a higher claim, then this method was used for the given month. Broadly speaking this meant that if the workers had been on a job in the relevant month in 2019-2020 then the lookback method was used, but if not, then the averaging method was used.

The effect of the conclusion above is that the amounts used in calculating the averaging method were too low, because they did not include the higher salary paid for the period from the start of the holiday parks contract work until 22 March 2020.

We do not have calculations that exactly match that outcome and therefore direct the parties to agree the reduction to the Assessments that will be necessary in order to reflect the change to calculating the average.

In relation to the remaining arguments raised by CESL, we find as follows:

For the reasons set out above, we:

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.