Letter Workshop Ltd v The Commissioners for HMRC

This appeal concerns claims made by the Appellant (‘Little Workshop Limited’) in respect of coronavirus support payments (“theSupport Payments”) under the Coronavirus Job Retention Scheme (“CJRS”).The Appellant “furloughed” six employees between 14 March 2020 and 30 September 2021. Those employees were Charles Glover (‘CG’), Andrew Weston (‘AW’), Benjamin Sanderson (‘BS’), Daniel Thomas (‘DT’), Lynne Williams (‘LW’) and James Ross (‘JR’). The Support Payments in issue in this appeal relate to four of those employees; namely: (i) AW; (ii) JR; (iii) BS; and (iv) DT (“the relevant employees”).

HMRC have concluded that the Appellant failed to calculate the claims in line with paras. 5, 7 and 8 of the Coronavirus Act 2020 Functions of HM Revenue & Customs (CJRS) Direction (“the First Direction”), dated 15 April 2020. The mechanism under which wrongly paid CJRS Support Payments are recovered is by the imposition of a charge to income tax equal to the wrongly claimed payment, such as that which has arisen in this appeal.

The Appellant appeals against assessment to tax (“the Assessments”) raised under para. 9 of Schedule 16 to the Finance Act 2020 (“Schedule 16”), as follows:

Sections 71 and 76 of the Coronavirus Act 2020 (“the Coronavirus Act”) empowered the Treasury to direct HMRC’s functions in relation to Coronavirus.

With the consent of the parties, the form of the hearing was V (video). 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.We are grateful to Mr Glover and Ms Williams (LW), who was also in attendance, for their evidence and submissions in this appeal. Having carefully considered the evidence and the submissions made by both parties, we dismiss this appeal. Our conclusions are as a result of the legislation, which we are obliged to apply.

In this Decision, the legislation and case law are cited so far as relevant to the issues in dispute.

The issues in the appeal are:

These, in turn, require consideration of:

There is a shifting burden of proof in this respect.

The burden of proof is on:

The standard of proof is the ordinary civil standard; that of a balance of probabilities.

The documents to which we were referred included: (i) the Document & Authorities Bundle consisting of 879 pages; (ii) HMRC’s Skeleton Argument dated 27 October 2025; (iii) Excel spreadsheet submitted by the Appellant; and (iv) the Appellant’s reply to HMRC’s Statement of Case.

The Appellant is a printing company, which was incorporated on 13 October 2015. The Appellant has one director, CG.

On 7 October 2022, Officer Niall Budd (of HMRC) wrote to the Appellant to advise that HMRC were opening a check into the claims for Support Payments made by the Appellant in respect of the CJRS. HMRC’s letter set out what information was required in order to check the Appellant’s claims, including information related to the relevant employees. The deadline for providing the information was 24 October 2022.

On 4 January 2023, following a number of phone calls, exchanges of correspondence and extensions of time, CG sent the information requested by email. Due to password issues, this was received via drop-box on 9 January 2023. A full breakdown of all CJRS claims for each employee was provided, including ‘usual pay’ as follows:

Claim printouts were also provided, along with screenshots of a webchat between CG and HMRC. Officer Budd compared these usual pay figures to the Full Payment Submissions (“FPS”) which had been submitted electronically by Real Time Information (“RTI”) on a monthly basis.

On 10 January 2023, Officer Budd requested further information due to the usual pay figures differing from RTI submissions from the 2019-20 tax year prior to furlough. Contracts for the salary increases were requested, as well as clarification of the figures within the claims/information provided, as they did not match.

On 24 January 2023, CG sent the further information via email and Dropbox, including the employment contracts for AW and JR.

On 8 February 2023, HMRC emailed the Appellant and set out the initial issues identified, based on the information provided so far. They included:

HMRC confirmed that no decisions had been made at that time. HMRC requested the reasons for the increased salaries for AW and JR, and for any supporting documentation such as emails, payroll instructions or email correspondence relating to the increased pay. HMRC also requested a breakdown of the pay for DT and BS for 31 March 2020, including holiday pay and furlough pay.

On 15 March 2023, CG sent further information by email, with the remainder sent on 26 March 2023. The email set out the reasons for the salary increase for AW and JR, and the method used to calculate the pay for DT and BS. CG explained that the reason for the increased salary for both AW and JR included:

CG added that an internal recruitment process took place in January 2020. CG further explained that as a small business (five people), the Appellant does not have a dedicated HR function and, therefore, did not have any correspondence or further evidence of the salary increase - apart from the contracts for both AW and JR, which were provided. CG stated that LW was responsible for daily payroll and timesheets alongside Michael Smith (the agent), but that LW had now left the company. CG did not provide any further evidence, but offered to provide contact details for both. Further evidence was subsequently provided. Calculation methods for BS and DT were also provided.

On 13 April 2023, HMRC emailed the Appellant a copy of the letter dated and posted on 14 April 2023, setting out their view of the case.

On 25 April 2023, the agent emailed HMRC and requested an extension to reply to the pre-assessment letter. He further stated that this was the first he had heard about the check, and that he had an influx of emails and letters provided by the Appellant that he needed to review. HMRC agreed to extend the deadline for one month (to 31 May 2023) to allow the agent time to review the case.

On 2 June 2023, CG provided further information in response to the pre- assessment letter.

On 14 June 2023, the Appellant requested that the review be delayed while CG compiled further information.

On 14 June 2023, further information was received by email from the Appellant.

On 22 June 2023, assessment letters were sent to Appellant and the agent, explaining that there had been no change in the decision to raise the Assessments.

On 5 September 2023, the Appellant accepted the offer of a review.

On 1 December 2023, a review conclusion letter was issued, varying the Assessments.

On 4 January 2024, the Appellant filed a Notice of Appeal with the First-tier Tribunal (‘FtT’).

In order to put the parties’ respective contentions into context, we start with the relevant statutory provisions.

The relevant law, so far as is material to the issues in this appeal, is as follows:

Sections 71 and 76 of the Coronavirus Act provided the Treasury with the power to direct HMRC’s functions in relation to coronavirus.

Section 76 provides that:

“Her Majesty’s Revenue and Customs are to have such functions as the Treasury may direct in relation to coronavirus or coronavirus disease.” 

Section 71 provides that:

“71 Signatures of Treasury Commissioners

(1)

Section 1 of the Treasury Instruments (Signature) Act 1849 (instruments etc required to be signed by the Commissioners of the Treasury) has effect as if the reference to two or more of the Commissioners of Her Majesty’s Treasury were to one or more of the Commissioners.

(2)

For the purposes of that reference, a Minister of the Crown in the Treasury who is not a Commissioner of Her Majesty’s Treasury is to be treated as if the Minister were a Commissioner of Her Majesty’s Treasury.”

Pursuant to these powers, the Chancellor of the Exchequer signed the First Direction to govern HMRC’s administration of the CJRS on 15 April 2020. This was subsequently followed by several Directions that set out modifications in relation to CJRS during the pandemic.

The main body of the First Direction, provides that:

“1.

This direction applies to Her Majesty’s Revenue and Customs.

2.

This direction requires Her Majesty’s Revenue and Customs to be responsible for the payment and management of amounts to be paid under the scheme set out in the Schedule to this direction (the Coronavirus Job Retention Scheme).

3.

This direction has effect for the duration of the scheme.”

The purpose of the CJRS is set out at para. 2 of the First Direction, which provides that:

“2.1

The purpose of the 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.”

The First Direction further contained a “Schedule” setting out the CJRS. The Schedule specified, at para. 3, the employers to which it applied. Under para. 3, an employer could make a claim for Support Payments under the CJRS if they have a Pay-As-You-Earn (“PAYE”) scheme registered on HMRC’s RTI system for PAYE by 19 March 2020, in the form of FPS.

“Schedule A1” of the Income Tax (Pay As You Earn) Regulations 2003 SI 2003/2682 (“the PAYE Regulations”) sets out the information that must be supplied to HMRC. The information includes the date of the payment, and the pay frequency. Paragraph 67B of the PAYE Regulations provides that:

“on or before making a relevant payment to an employee, a Real Time Information employer must deliver to HMRC the information specified in Schedule A1 in accordance with this regulation.”

For CJRS grants covering periods up to 31 October 2020, the RTI FPS had to be received by 19 March 2020, disclosing the employees’ 2019-20 pay from the employer.  For grants covering periods from 1 November 2020 to 30 April 2021, employees must have been included in the RTI FPS submission received by 31 October 2020. 

Paragraph 5 of the First Direction sets out the costs of employment, known as “qualifying costs”, that an employer is entitled to claim under the CJRS. This includes qualifying costs that:

“(a)

relate to an employee

(i)

to whom the employer made a payment of earnings in the tax year 2019-20 which is shown in a return under Schedule A1 to the PAYE Regulations that is made on or before a day that is a relevant CJRS day,

(ii)

in relation to whom the employer has not reported a date of cessation of employment on or before that date, and

(iii)

who is a furloughed employee (see paragraph 6), and

(b)

meets the relevant conditions in paragraphs 7.1 to 7.15 in relation to the furloughed employee.”

The definition of “relevant CJRS day” is set out at para. 13.1 of the Schedule, as follows:

“13.1

For the purposes of CJRS –

(a)

a day is a relevant CJRS day if that day is –

(i)

28 February 2020, or

(ii)

19 March 2020.”

Paragraphs 7.1 to 7.15 set out conditions for qualifying costs to be included for “variable” and “fixed-rate” employees.

Paragraph 7.1 sets out the conditions relating to “qualifying costs”, as follows:

“Qualifying costs – further conditions

7.1

Costs of employment meet the conditions of 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 purpose of paragraphs 7.2 and 7.7, no account is to be taken of anything which is not regular salary or wages.”

Paragraph 7.4 provides the definition of “regular salary or wages” as follows:

“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”.

Paragraph 7.5 defines the “relevant matters” as:

“7.5

The relevant matters are:

(a)

the performance of any part of any business of the employer or any business of a person connected with the employer

(b)

the contribution made by the employee to the performance of, or any part of the business

(c)

the performance by the employee of any duties of the employment, and

(d)

any similar considerations or otherwise payable at the discretion of the employer or any other person (such as a gratuity).”

A “fixed-rate employee” is defined at para. 7.6, as follows:

“7.6

A person is fixed rate employee if-

(a)

The person is an employee or treated as an employee for the purposes of CJRS by virtue of paragraph 13.3(a) (member of a limited liability partnership),

(b)

The person is entitled under their contract to be paid an annual salary,

(c)

The person is entitled under their contract to be paid that salary in respect of a number of hours in a year whether those hours are specified in or ascertained in accordance with their contract (“the basic hours”),

(d)

The person is not entitled under their contract to a payment in respect of the basic hours other than an annual salary,

(e)

The person is entitled under their contract to be paid, where practicable and regardless of the number of hours actually worked in a particular week or month in equal weekly, multiple of weeks or monthly instalments (“the salary period”), and

(f)

The basic hours worked in a salary do not normally vary according to business, economic or agricultural seasonal considerations.”

Paragraph 7.7 provides for the “reference salary” for a fixed-rate employee, as follows:

“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).”

An employee’s salary is, therefore, calculated with reference to one of two tests set out in the First Direction, depending on whether an employee is a ‘fixed-rate’ employee.

Paragraph 8 sets out what expenditure can be reimbursed in a CJRS claim. Paragraph 8.2(b) makes reference to an employee’s ‘reference salary’ and requires consideration of paras. 7.1 to 7.15 when calculating this.

Paragraphs 8.3 to 8.5 set out that an employer could be reimbursed for the NICs that were paid on the gross earnings under the CJRS, but this could not exceed the total amount of employer's contributions actually paid by the employer for the period of the claim. For the purposes of the CJRS, NICs were the secondary Class 1 contributions an employer was liable to pay as a secondary contributor in respect of an employee by virtue of ss 6 and 7of the Social Security Contributions and Benefits Act 1992 (“SSCBA”), or ss 6 and 7 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (“SSCB(NI)A”).

Paragraphs 8.8 to 8.9 set out that the employer could be reimbursed for the pension contributions to a registered pension scheme.

Paragraph 12 of the Schedule made it explicit that the CJRS would relate to the period 1 March 2020 to 31 May 2020.

Subsequent Directions extended the CJRS, with some modifications which are not relevant to this appeal. (Footnote: ²)

Paragraphs 8 and 9 of Schedule 16 provide for “liability to income tax” and “assessments”, as follows:

“8Charge if person not entitled to coronavirus support payment

(1)

A recipient of an amount of a coronavirus support payment is liable to income tax under this paragraph if the recipient is not entitled to the amount in accordance with the scheme under which the payment was made.

...

(5)

The amount of income tax chargeable under this paragraph is the amount equal to so much of the coronavirus support payment

(a)

as the recipient is not entitled to, and

(b)

as has not been repaid to the person who made the coronavirus support payment.”

9 Assessments of income tax chargeable under paragraph 8

(1)

If an officer of Revenue and Customs considers (whether on the basis of information or documents obtained by virtue of the exercise of powers under Schedule 36 to FA 2008 or otherwise) that a person has received an amount of a coronavirus support payment to which the person is not entitled, the officer may make an assessment in the amount which ought in the officer's opinion to be charged under paragraph 8.

(2)

An assessment under sub-paragraph (1) may be made at any time, but this is subject to sections 34 and 36 of TMA 1970.

(3)

Parts 4 to 6 of TMA 1970 contain other provisions that are relevant to an assessment under sub-paragraph (1) (for example, section 31 makes provision about appeals and section 59B(6) makes provision about the time to pay income tax payable by virtue of an assessment).”

Paragraph 8(1) of Schedule 16 therefore provides that a recipient of Support Payments is liable to income tax if they were not entitled to a Support Payment that they received pursuant to the CJRS. The amount charged is equal to the amount of the Support Payment to which the applicant was not entitled (para.8(5))

The Taxes Management Act 1970 (“TMA”) applies to determine the procedure for an appeal against an assessment under para. 9 of Schedule 16.

Section 34 TMA requires that the general “time-limit” for raising an assessment is 4 years from when the tax became due. 

The “right of appeal” is provided for at s 31 TMA.

The jurisdiction of the FtT is set out in ss 50(6) and (7), as follows:

“(6)

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

...

(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-

…

(c)

that the appellant is undercharged by an assessment other than a self- assessment, the assessment shall be increased accordingly, but otherwise the assessment shall stand good”

The FtT’s powers therefore only extend to reducing/increasing or confirming the Assessments.

The documents for the hearing, set out at para. 12 above, comprised pleadings, documents relating to HMRC’s enquiry and appeal correspondence. The bundle also contained the statement of Officer Budd, who confirmed his decision to issue the Assessments on the basis of the information provided by the Appellant, in line with the legislation.

The Appellant’s submissions can be summarised as follows:

Mr Afzal’s submissions can be summarised as follows:

We are grateful to both parties for their submissions. At the conclusion of the hearing, we reserved our decision, which we now give with reasons. We have considered any key points of disagreement in determining the facts as set out below.

The following facts were either admitted, accepted or proved:

We, therefore, make these material findings of fact and conclude that the Support Payments received were excessive. We now give our reasons for so finding.

The Appellant appeals against Assessments to tax in respect of Support Payments made to four employees (i.e., the relevant employees) under the CJRS. The CJRS was introduced at the start of the COVID-pandemic to provide funding for employers who had furloughed their employees; rather than making them redundant when businesses were, effectively, forced to shut down as a result of the lockdown announced in March 2020. The scheme allowed a qualifying employer to apply for reimbursement of the expenditure incurred by the employer in respect of those employees entitled to be furloughed under the scheme.

Section 50(6) TMA provides that if, on an appeal, it appears to the Tribunal that an appellant is overcharged by an assessment, the assessment shall be reduced accordingly but “otherwise the assessment … shall stand good”.

The parties clearly have diametrically opposed views as to how the legislation should apply. In further amplification of their case, HMRC submit that:

In further amplification of the Appellant’s case, Mr Glover submits that:

Our conclusions regarding the key submissions made by the parties are set out below. As the Appellant has submitted that the relevant Treasury Direction is the Second Direction, we start by considering this preliminary issue.

The Appellant submits that the relevant Treasury Direction is the Second Direction, and that this permits the inclusion of ‘holiday pay’ to determining the ‘reference salary’. We find that the Appellant’s view is misconceived. This is because the Appellant made the claims which are the subject of the decision under appeal on 20 April 2020. The relevant Treasury Direction relates to claims within this period.The Second Direction (dated 20 May 2020) and the Third Direction (dated 25 June 2020) extended the CJRS to claims between 30 June 2020 and 31 October, respectively. The ‘relevant day’ however remained the same (i.e., 19 March 2020). The RTI therefore had to have been received by this time. (see “Appendix”).

HMRC are empowered to raise assessments if they consider that a person has received an amount of coronavirus support payment to which that person is not entitled. Paragraphs 8 and 9 of Schedule 16 (supra) provide that a recipient of an amount of support payments is liable to income tax under para. 8 if the person is not entitled to the amount under the CJRS. The amount of income tax chargeable is the amount equal to the amount of the support payment that the recipient is not entitled to. This is treated as a charge to income tax. The time-limit for raising an assessment is specified at ss 34 and 36 TMA. The time-limit is, broadly, within four years of the period to which the Assessment relates. HMRC raised the Assessments in this appeal on the basis of all of the information and documents obtained by virtue of their powers to request and obtain documents, and within the time limit. In any event, it is not suggested that the Assessments in this appeal were made outside of the four-year time-limit.

We are satisfied that the Assessments were valid, and in time.

We have sought to avoid repeating the legislation but require to do so as a result of the significant divergence in the parties views as to whether the legislation has been correctly and competently applied.

The substantive appeal concerns how to calculate the Appellant’s entitlement to CJRS Support Payments in respect of the relevant employees. The starting point is para. 8.1(a) of the First Direction, which provides that if a claim is made by an employer for a support payment, the payment may reimburse:

“the gross amount of earnings paid or reasonably expected to be paid by the employer to an employee…”

‘Gross amount’ of earnings is then dealt with at para. 8.2 of the First Direction:

“The amount to be paid to reimburse the gross amount of earnings must… not exceed the lower of £2,500 per month, and the amount equal to 80% of the employees reference salary...”

The amount payable as CJRS support payment therefore depends on the amount of the ‘reference salary’. The ‘reference salary’ is determined in accordance with paras. 7.1 to 7.15 of the First Direction. It cannot be determined in any other way, no matter how reasonable that alternative method of calculation. The legislation, itself, prescribes the way in which an employee’s reference salary is to be determined, and leaves no room for an alternative. The amount of the reference salary is calculated differently, depending on whether the employee is a ‘fixed-rate’ or ‘variable-rate’ employee. It also depends on the employee’s actual salary by the ‘relevant CJRS day’. We shall return to this issue later.

If an employee is a ‘fixed rate’ employee, the reference salary used to calculate the amount of CJRS support payments an employer can claim is, in accordance with para. 7.7 of the First Direction;

“...the amount payable to the employee in the latest salary period ending on or before 19 March 2020...”

This is a requirement of the legislation that cannot be circumvented, or overcome.

If an employee is a ‘variable-rate’ employee, the reference salary is determined with reference to para. 7.2 of the First Direction, which in respect of each month takes the higher of average pay over the 2019-20 tax year, and the amount actually paid in the month (i.e., March 2020). In this respect, para. 7.2 of the First Direction provides that.

“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.”

The first of these is the “look-back method”.

The second of these is the “averaging method”.

A claimant is given the benefit of being able to choose between the two methods in order to ensure that the claim is the “greater”. The differences are because where salaries are variable, then an averaging is appropriate. For employees on fixed salaries, taking the last month is more convenient. Both of the methods consider wages paid in earlier periods and can only take into account amounts “paid” (in the case of the ‘averaging method’) or “actually paid” (in the case of the ‘look-back method’). Wages which are not paid, or actually paid, cannot be taken into account as a matter of principle. This is also a requirement of the legislation that cannot be circumvented or overcome.

We have considered earlier that para. 5 of the First Direction sets out the costs of employment, known as “qualifying costs”, that an employer is entitled to claim under the CJRS. This includes qualifying costs that:

“(a)

relate to an employee

(i)

to whom the employer made a payment of earnings in the tax year 2019-20 which is shown in a return under Schedule A1 to the PAYE Regulations that is made on or before a day that is a relevant CJRS day,

(ii)

in relation to whom the employer has not reported a date of cessation of employment on or before that date, and

(iii)

who is a furloughed employee (see paragraph 6), and

(b)

meets the relevant conditions in paragraphs 7.1 to 7.15 in relation to the furloughed employee.”

The ‘relevant CJRS day’ is 19 March 2020. The reference salary is to be determined with regard to this date.

Under para. 3 of the First Direction, an employer could make a claim for support payments under the CJRS if they have a PAYE scheme registered on HMRC’s RTI system for PAYE by 19 March 2020, in the form of FPS. Paragraph 3 of the First Direction materially provides that:

“Qualifying employers

3.1

An employer may make a CJRS claim if the employer has a qualifying PAYE scheme.

3.2

An employer has a qualifying PAYE scheme if-

(a)

at the time of making the CJRS claim, the employer has a PAYE scheme registered on HMRC’s real time information system for PAYE, and

(b)

that scheme was registered as described in paragraph 3.2(a) on or before 19 March 2020.”

Whilst this relates to the employer and, as submitted by Mr Glover, seeks to stop new employment being “invented” after the relevant day, the relevance of the RTI extends beyond this.

With those basic principles in mind, we turn to the circumstances of this appeal:

HMRC accept that AW was a ‘fixed-rate’ employee, as defined by para. 7.6 of the First Direction. This matter is not in issue between the parties. HMRC submit, however, that the higher salary used by the Appellant in the calculations for AW was incorrect. This is because a new contract was in place in respect of AW after the ‘relevant CJRS day’. Mr Glover explained that whilst AW was not paid in accordance with his new contract until April 2020, the obligation to pay him in accordance with the new contract arose in March 2020; with the contracts being in place in February 2020 following a recruitment process in January 2020. Mr Glover further submits that para. 7 of the First Direction does not make reference to RTI in respect of a person’s usual pay.

We are satisfied that Mr Glover’s submissions are misconceived. This is because the ‘qualifying costs’ that an employer is entitled to claim are based on that RTI, as follows:

“ Qualifying costs

5.

The costs of employment in respect of which an employer may make a CJRS claim are costs which-

(a)

relate to an employee-

(i)

to whom the employer made a payment of earnings in the tax year 2019-20 which is shown in a return under Schedule A1 to the PAYE Regulations that is made on or before a day that is a relevant CJRS day,

(ii)

in relation to whom the employer has not reported a date of cessation of employment on or before that day and

(iii)

who is a furloughed employee (see paragraph 6.1), and

(b)

meet the relevant conditions in paragraphs 7.1 to 7.15 in relation to the furloughed employee.”

Paragraph 5 of the First Direction therefore materially provides that the costs must relate to an employee to whom the employer made a payment of earnings in the 2019-20 tax yar, which is shown in a return under Schedule A1 to the PAYE Regulations that is made ‘on or before’ a day that is a ‘relevant CJRS day’. We have already seen from our consideration of the legislation that Schedule A1 of the PAYE Regulations sets out the information that must be supplied to HMRC. The information includes the date of the payment, and the pay frequency. Relevantly, para. 67B of the PAYE Regulations provides that:

“on or before making a relevant payment to an employee, a Real Time Information employer must deliver to HMRC the information specified in Schedule A1 in accordance with this regulation.”

We have also seen that a ‘relevant CJRS day’ is defined as:

“13.1

For the purposes of CJRS –

(a)

a day is a relevant CJRS day if that day is –

(i)

28 February 2020, or

(ii)

19 March 2020.”

As JW is a ‘fixed-rate’ employee, the next relevant consideration is para. 7.7 of the First Direction, which provides that:

“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).”

This clearly refers to the latest salary period ending on, or before, 19 March 2020 (the relevant CJRS day), and not some day in the future in the spirit of honouring a new contractual agreement. The material consideration is the RTI and when it was received. Mr Glover further submits that valid contracts were already in existence by March 2020. The only relevance of a “legally enforceable contract” being in existence is in respect of para. 7.6, which defines a ‘fixed-rate’ employee, and not in relation to when the payment has to be made.

Having considered all of the information before us, we are satisfied that payment under the new salary was not paid in February, or before 19 March 2020. This is not disputed by Mr Glover. We have considered AW’s latest salary period ending on or before 19 March 2020. AW’s latest salary period was February 2020, according to the Appellant’s RTI submissions. His salary was £1,000 per month at that time. AW’s reference salary should, therefore, have been £1,000 in order to calculate the expenditure to be reimbursed, in line with paras. 8.1-8.12 of the First Direction.

HMRC submit that JR was incorrectly classified as a ‘fixed-rate’ employee, based on the mistaken view that the new contract could be used to calculate the ‘reference salary’. The new contract was set out as follows:

“3.1

This contract of employment begins on 1 March 2020

…

6.4

Your basic salary will be £26,250 per annum

…

6.4

You will be paid your salary through BACs to your bank account on the 1st day of each month, after deductions of Income Tax (PAYE), National Insurance and any other deduction required by law.”

We have already determined that the issue is not whether there were valid contracts in place in respect of the relevant employees. The issue relates to whether the ‘reference salary’ was calculated in accordance with the legislation. The appropriate provision to calculate JR’s reference salary is contained at 7.2 of the First Direction, as follows:

“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.”

JR’s increased salary of £26,250.00 was divided by 12 (months) to calculate a reference salary of £2,187.50. JR’s pay for March 2020 was not, however, due until 1 April 2020. Once again, his salary was not payable in the latest salary period ending on or before 19 March 2020, as required by para. 7.2 of the First Direction. The new contract as a ‘fixed-rate’ employee was ineligible for consideration when calculating the reference salary. That JR was a variable-rate employee is supported by the Appellant’s RTI returns, which demonstrate that the salary paid to JR varied monthly during the 2019-20 tax year.

Having considered all of the information before us, and having regard to the legislation, as a variably paid employee, the correct reference salary for JR (using the average monthly amount paid for the tax year 2019-20, in accordance with para. 7.2 (a) of the First Direction), was £1,695.60 per month. The review conclusion calculated JR’s average daily-rate based on his earnings since his employment date of 30 September 2019, and before being furloughed on 14 March 2020. The “look-back method” (para. 7.2 (b)) was also used for comparison and the higher of the two figures applied, where applicable, pursuant to para 7.2 of the First Direction. We are in agreement with these conclusions.

HMRC accept that BS and DT were variably paid employees. However, the Appellant also included ‘holiday pay’ in the calculations of ‘reference salary’ for both BS and DT. BS and DT were variably paid employees and, therefore, we are satisfied that the reference salary must be calculated in accordance with 7.2 of the First Direction, as already considered in respect of JR (above).

In respect of the inclusion of ‘holiday pay’, para. 7.3 of the First Direction provides that:

“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.”

HMRC therefore recalculated reference salaries for DT and BS using hours worked during March, and not holidays taken when furloughed. This is correct. In reaching this conclusion, we have regard to our findings as to the relevant Treasury Direction with reference to the date of the claims.

Mr Glover makes reference to HMRC’s Guidance in support of the submission that HMRC should have abided by this. We are satisfied that HMRC’s guidance is not an exhaustive code, or a comprehensive edict. It is trite law that guidance documents and kindred instruments do not have the status of law and, thus, are subservient to primary legislation and secondary legislation. At [10] to [11] of his judgment in Mahad (Ethiopia) v Entry Clearance Officer [2010] 1 WLR 48, Lord Brown disapproved the use of guidance documents as an aid to statutory interpretation. At [23] of the judgment in MD (Jamaica) v Secretary of State for the Home Department [2010] EWCA Civ 213, Dyson LJ reached conclusions to the same effect.

The correct modern approach to the interpretation of tax statutes is that the court's task, within the permissible bounds of interpretation, is to give effect to Parliament's purpose. In this regard, controversial provisions should be read in the context of the statute as a whole, and the statute as a whole should be read in the historical context of the situation which led to its enactment. In seeking the purpose of a statutory provision, the interpreter is not confined to a literal interpretation of the words, but must have regard to the context and scheme of the relevant Act as a whole.

The general principles of statutory interpretation were explained by Lord Hodge in R (O) v Secretary of State for the Home Department [2022] UKSC 3, [2023] AC 255, at [29] to [32]. The task is to identify the meaning of the words that Parliament has used. Words and passages derive their meaning from their context. They are the words which Parliament has chosen to enact as an expression of the purpose of the legislation and are, therefore, the primary source by which meaning is ascertained. External aids to interpretation must play a secondary role. Explanatory Notes (prepared under the authority of Parliament) may cast light on the meaning of particular statutory provisions.

The purpose of the scheme was to provide for payments to be made to employers on a claim made in respect of them incurring costs of employment in relation to furloughed employees arising from the health, social and economic emergency in the United Kingdom (resulting from coronavirus). As rightly submitted by Mr Glover, the costs must relate to costs by qualifying employers in order to stop new employment being “invented” after the relevant CJRS day. The relevance of the RTI extends beyond this as the ‘qualifying costs that an employer is entitled to claim are based on the RTI, as set out in para. 5 of the First Direction.

Whilst Mr Glover appeared to accept that the FtT cannot consider public law arguments in the context of this appeal, he nevertheless placed reliance on the Grounds of Appeal and the Appellant’s reply to HMRC’s Statement of Case; both of which make extensive submissions on the issue of legitimate expectation, and fairness. Mr Glover contends that the Appellant relied on advice from HMRC through the HMRC webchat function, and that this created a legitimate expectation that their CJRS claims were correct.

The starting point is that the FtT is a creature of statute and its jurisdiction is wholly derived from statute. In Aspin v Estill [1987] STC 723 (‘Aspin v Estill’) (at 727), Nicholls LJ said this:

“The taxpayer is saying that an assessment ought not to have been made. But in saying that, he is not, under this head of complaint, saying that in this case there do not exist in relation to him all the facts which are prescribed by the legislation as facts which give rise to a liability to tax. What he is saying is that, because of some further facts, it would be oppressive to enforce that liability. In my view that is a matter in respect of which, if the facts are as alleged by the taxpayer, the remedy provided is by way of judicial review.”

The FtT was created by s 3(1) of the Tribunals, Courts and Enforcement Act 2007 (“the TCEA”) for the purposes of “exercising the functions conferred on it by virtue of” the TCEA. This point was made clear by the House of Lords in C & E Comrs v J H Corbitt (Numismatists) Ltd [1981] AC 22 (‘J H Corbitt (Numismatists)’). The starting point is that appeal grounds which concern public law arguments should be pursued in judicial review proceedings, rather than before the FtT.

In R & C Comrs v Hok [2013] STC 225 (‘Hok’), the UT said this, at [41]:

“41.

There is in our judgment no room for doubt that the First-tier Tribunal does not have any judicial review jurisdiction. That was made abundantly clear by the House of Lords in Customs and Excise Commissioners v J H Corbitt (Numismatists) Ltd [1981] AC 22. That case related to the Value Added Tax Tribunals rather than the First-tier Tribunal, but they too were a creature of statute with no inherent jurisdiction, and the relevant principles are identical. Lord Lane (with whom the majority agreed) said, in what remains the classic statement on the point:

“Assume for the moment that the tribunal has the power to review the commissioners’ discretion. It could only properly do so if it were shown the commissioners had acted in a way which no reasonable panel of commissioners could have acted; if they had taken into account some irrelevant matter or had disregarded something to which they should have given weight. If it had been intended to give a supervisory jurisdiction of that nature to the tribunal one would have expected clear words to that effect in the [Finance Act 1972]. But there are no such words to be found. Section 40(1) sets out nine specific headings under which an appeal may be brought and seems by inference to negative the existence of any general supervisory jurisdiction.”

The point was also made by Jacob J in C & E Comrs v National Westminster Bank plc [2003] STC 1072, where he adopted what had been said by Moses J in Marks & Spencer plc v C & E Comrs [1999] STC 205, at 247c, as follows:

“….in so far as the complaint is not focused upon the consequences of the statute but rather upon the conduct of the commissioners then it is clear that the tribunal had no jurisdiction. Its jurisdiction is limited to decisions of the commissioners and it has no jurisdiction in relation to supervision of their conduct.”

This principle was applied by Warren J in the UT in HMRC v Abdul Noor [2013] UKUT 71 (‘Noor’), at [28]. At [87], the UT said this:

“In our view, the FTT does not have jurisdiction to give effect to any legitimate expectation which Mr Noor may be able to establish in relation to any credit for input tax….In contrast, a person may claim a right based on legitimate expectation which goes behind his entitlement ascertained in accordance with the VAT legislation (in that sense); in such a case, the legitimate expectation is a matter for remedy by judicial review in the administrative court; the FTT has no jurisdiction to determine the disputed issue in the context of an appeal under s83.”

Consistently with Hok, the UT concluded that the FtT had no judicial review jurisdiction.

The appeal in Trustees of the BT Pension Scheme v HMRC [2016] STC 66 (‘BT Pension Scheme’) concerned, among other issues, a legitimate expectation argument in the context of an extra-statutory concession relating to time limits. The court said this

“129.

Our own view is that HMRC's construction of ESC B41 is almost certainly correct and is conclusive of this issue. But the Upper Tribunal did not decide the point on this basis. It held that it had no jurisdiction to decide what amounted to a challenge to the lawfulness of the Revenue's refusal to extend to the Trustees the benefit of the extra- statutory concession because it amounted to a public law challenge which should be brought by way of an application for judicial review in the Administrative Court. In so doing, the Upper Tribunal refused to follow the decision of Sales J in Oxfam v. HMRC:

“401.

Our reasons for saying that the Tribunal has no jurisdiction to give effect to the Extra-Statutory Concessions stems from the recent decision of the Upper Tribunal in HMRC v Hok Ltd [2012] UK Upper Tribunal 363 (TCC) (“Hok”) a decision of Warren J and Judge Bishopp. Mr Vajda has relied on the decision of Sales J in Oxfam v. HMRC [2009] EWHC 3078 (Ch), [2010] STC 686 (“Oxfam”), paragraphs 61 to 79 to demonstrate that the Tribunal does have jurisdiction. However, that decision turned on a construction of 83(1)(c) of the Value Added Tax Act 1994 which Sales J held gave jurisdiction to the VAT Tribunal to deal with legitimate expectation in the context of an appeal as to the amount of input tax. It lends no support at all to the view that the Tribunal has a general jurisdiction to deal with public law matters, whether in the context of direct tax or indirect tax, in particular to require, in the exercise of some sort of supervisory jurisdiction, HMRC to give effect to a concession. The suggestion that there is a jurisdiction in the context of direct tax is refuted by the decision in Hok.”

...

142.

The statutory jurisdiction conferred upon the FTT by s.3 TCEA 2007 is in our view to be read as exclusive and the closure notice appeals under Schedule 1A TMA do not extend to what are essentially parallel common law challenges to the fairness of the treatment afforded to the taxpayer. The extra-statutory concession is, by definition, a statement as to how HMRC will operate in the circumstances there specified and its failure to do so denies the legitimate expectation of taxpayers who had been led to expect that they would be treated in accordance with it...

143.

We therefore consider that the reasoning of Sales J in Oxfam v HMRC has no application to the statutory jurisdiction under s.3 TCEA 2007 in the sense of giving to the FtT and the Upper Tribunal jurisdiction to decide the common law question of whether HMRC has properly operated the extra-statutory concession.”

The FtT may have jurisdiction to consider appeal grounds based on public law arguments - such as legitimate expectation - depending on the statutory provisions under consideration. Thus, the statutory context is key. Whether or not there is jurisdiction in any case turns on the language of the relevant legislation, and the nature of HMRC’s act or discretion. Caerdav Ltd v HMRC [2023] UKUT 00179 (TCC) (‘Caerdav’) and Hoey v HMRC [2022] EWCA Civ 656 (‘Hoey’) provide some support for the proposition that the starting point is that appeal grounds concerning public law arguments should be pursued in judicial review proceedings - rather than in the Tribunal - unless the statutory context indicates otherwise.

In Hoey, at [132], the Court of Appeal held that:

“The question of jurisdiction can only be determined by reference to the particular statutory scheme in question that governs the tax tribunal’s jurisdiction.”

The Court of Appeal made clear, at [132], that the FtT cannot confer jurisdiction on itself, and that the parties cannot agree to confer jurisdiction on the FtT.

In The Executors of David Harrison (Deceased) and others v HMRC [2021] UKUT 273 (TCC) (‘Harrison’), at [36], the UT indicated that it “overstates matters” to say that the FtT does not have the power “to consider public law arguments to the effect that HMRC have exercised discretion wrongly, with that strong presumption being rebutted only with clear words or necessary implication”. It is “simply a matter of statutory construction”.

In Alway Sheet Metal v HMRC [2017] UKFTT 198 (TC) (‘Alway’), at [87], Judge Richards, equally, pointed out that the FtT’s jurisdiction had to be determined by reference to the statutory provisions governing the appellant’s appeal “as the FtT is a creature of statute with no inherent jurisdiction”. At [97], he said this:

“There is no material difference between the right of appeal set out in s31 of TMA 1970 … and that set out in s83(1)(c) of the Value Added Tax Act 1994. All the statutory provisions confer a right of appeal against specified HMRC decisions and none makes any reference to matters other than the statutory provisions dealing with the taxes concerned. If Parliament did not intend s83(1)(c) to give the Tribunal jurisdiction to consider matters other than a person’s right to credit under VAT legislation, I see no reason why Parliament could have intended it to consider, on an appeal under s31 of TMA 1970 … questions of … legitimate expectation which go beyond the relevant statutory provisions. If anything, the provisions of s50(6) and s50(7) of TMA 1970 make this even clearer in the context of this appeal than it was in the VAT appeal being considered in Noor, as those sections emphasise that the Tribunal’s focus should be on the amount of the assessments being made and leave no room for a consideration of whether considerations of legitimate expectation … prevent HMRC from making the assessments.”

In Robin Houldsworth v HMRC [2024] UKFTT 224 (TC) (‘Houldsworth’), Judge Anne Scott said this:

“74.

I have added emphasis because whether or not there is jurisdiction in any case turns on the language of the relevant legislation and the nature of HMRC's act or discretion; hence the conflicting arguments about discretion or the lack thereof.

…

79.

Many of the cases to which I was referred related to the statutory scheme in the VATA and not the TMA. Although it is a First-tier Tribunal decision, and therefore of persuasive authority only, Mr Randle relied on Judge Richards, as he then was, at paragraph 87 of Alway Sheet Metal [2017] UKFTT 198 (TC)(“ASM”). Judge Richards pointed out that the Tribunal's jurisdiction had to be determined by reference to the statutory provisions governing the appellant's appeal “as the Tribunal is a creature of statute with no inherent jurisdiction”. I agree and, in any event, that appeared to be common ground.

80.

However, I record the point to give context because Judge Richards went on to state that that where an appellant had appealed to HMRC in terms of section 31 TMA, the Tribunal's powers on an appeal thereafter are set out in section 50 TMA and he discussed section 50 TMA (see paragraphs 82 and 89 below).”

The appeal provision in this appeal (namely s 50 TMA) is not dissimilar to s 83(1)(c) VATA. It is not a discretionary provision. Section 50 TMA was also a focus of attention in Aspin v Estill.

Even if a legitimate expectation argument were available in the circumstances of this appeal, in order to found a claim of legitimate expectation, a promise or representation relied upon must be:

“clear, unambiguous and devoid of relevant qualification.”

see Bingham LJ in R v Inland Revenue Comrs Ex p MFK Underwriting Agents Ltd [1990] 1 WLR 1545, 1569G (‘MFK’).

We are satisfied that there is no such statement in this appeal, and the legitimate expectation argument would fall at the first hurdle. We give our reasons for so finding.

The Appellant contends that the following statement by the HMRC webchat function supports their claim that the new contracts for AW and JR should be used as the usual pay:

“If you were contractually obliged as of 19th March 2020 to make the payments, then they should be included in the amount calculated. If you aren’t certain of this contractual obligation the guidance is to seek professionally qualified advice”

The webchat also states, inter alia, that:

“Q. Was the RTI submission for the increased pay rate submitted on or before 19th March 2020?

A.

What is RTI? My accountant processed the wages for us for the March pay.”

HMRC webchat operator responded:

“RTI is “Real Time Information” submitted to HMRC whenever wages are paid. Were these payments made before the end of March?”

The higher salaries used were not payable, or due to be paid, before the relevant CJRS day of 19 March 2020. Consequently, therefore, we find that any legitimate expectation argument would be wholly without merit.

The collection and management powers of HMRC are to be found at s 1 TMA and s 5 of the Commissioners of Revenue & Customs Act 2005 (“CRCA”). The scope of those powers was described by Lord Hoffman in R v HMRC ex parte Wilkinson [2005] UKHL 30, at [20] to [21], as follows:

“[20] Section 1 of TMA gives them what Lord Diplock described in R v Inland Revenue Commissioners, Ex p National Federation of Self-Employed and Small Businesses Ltd [1982] AC 617, 636, as

‘a wide managerial discretion as to the best means of obtaining for the national exchequer from the taxes committed to their charge, the highest net return that is practicable having regard to the staff available to them and the cost of collection.’

In R (on the application of Davies & Anor) v R & C Comrs [2011] STC 2249, the Supreme Court considered the discretion in HMRC’s duty of management. Lord Wilson said this, at [26]:

“The primary duty of the Revenue is to collect taxes which are properly payable in accordance with current legislation but it is also responsible for managing the tax system: see s1 of the Taxes Management Act 1970. Inherent in the duty of the management is a wide discretion. Although the discretion is bounded by the primary duty (see R (on the application of Wilkinson) v IRC [2005] UKHL 30 at [21], [2006] STC 270 at [21], [2005] I WLR 1718 per Lord Hoffman…”

Having found that no legitimate expectation arises in the circumstances of this appeal (on a jurisdictional basis and on the facts), we further find that the legislation makes provision for the actions of HMRC in respect of the collection of taxes and management of the system relating to the collection of taxes.

Having considered all of the information before us, cumulatively, we hold that:

Accordingly, therefore, the appeal is dismissed and the Assessments are upheld.

We exercise our powers under s 50(6) TMA to reduce the Assessments to £25,773.47 (from £28,169.96).

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.