Ruby Flooring Limited v The Commissioners for HMRC

This is the appellant’s appeal against assessments to income tax dated 1 February 2023 in the total sum of £47,998.25 for the tax years ending 5 April 2021 and 2022. They were issued pursuant to paragraph 9 of Schedule 16 to the Finance Act 2020 (“FA 20”). The first assessment was in the sum of £22,872.70 for the accounting period ending (“APE”) 30 November 2020 for the year ended 5 April 2021. The second was also for the year ended 5 April 2021 but was for the APE 30 November 2021 and was in the sum of £16,538.03. The third was in the sum of £8,587.52 for the APE 30 November 2021 for the year ended 5 April 2022.

HMRC request that the Tribunal exercise their power under section 50(6) of the Taxes Management Act 1970 (“TMA”) to decrease the later assessments relating to the two APEs 30 November 2021 from a total of £25,125.55 to £24,910.81 and in respect of the assessment for the APE 30 November 2020 to increase that from £22,872.70 to £23,579.13 in terms of section 50(7) TMA. The precise quantum is as set out in the Appendix to HMRC’s Statement of Case.

Under the Coronavirus Job Retention Scheme (“CJRS”), the appellant had claimed and received CJRS Support Payments or grants in relation to two employees (“the Employees”). There were 15 claims covering the period 6 March 2020 to 31 May 2021.

HMRC’s case is that the sums claimed were excessive and therefore they issued the assessments to claw back the overpayments.

That was on the basis that the appellant had failed to calculate the claims in accordance with paragraphs 5, 7 and 8 of The Coronavirus Act 2020 Functions of Her Majesty’s Revenue and Customs (Coronavirus Job Retention Scheme) Direction (“the First Direction”). The First Direction is dated 15 April 2020 and was made in exercise of the powers conferred on HMRC in terms of sections 71 and 76 of the Coronavirus Act 2020.

The appellant argues that the calculations were accurate and predicated on the salaries actually paid to the Employees and reported to HMRC contemporaneously.

With the consent of the parties, the hearing was conducted by video link using TEAMS. 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 Documents Bundle consisting of 760 pages. We had Skeleton Arguments for both parties. At the outset of the hearing we received copies of two emails. The first was the appellant’s objection to HMRC’s application to lodge a copy of the decision in KNR Flooring Limited v HMRC [2025] UKFTT 526 (TC) (“KNR”) and the second was a copy of an email from the appellant dated the evening before enclosing copies of bank statements for the Employees for the months of January and February 2020.

We heard evidence from Officer Laird and Mr Mitchell.

We explained to Mr Mitchell that HMRC were not attempting to consolidate KNR with this appeal, as he averred, and that they were entitled to refer to decided cases that were in the public domain. KNR was not binding on this Tribunal and we would decide what weight, if any, we would attach to it.

Of consent, the bank statements were admitted into evidence.

In preparing for the hearing, we had noted that at pages 404 and 405 in the Bundle there was included the appellant’s “Opening Statement” for the ADR mediation. Therefore at the outset of the hearing, we explained the law on ADR which is well explained in Ritchie v HMRC [2016] UKFTT 509 (TC). In layman’s terms, to paraphrase, - What happens in ADR, stays in ADR. The only information about ADR that is admissible in a Tribunal is the fact that it happened and the Outcome. Accordingly, that Opening Statement cannot be considered by the Tribunal.

For the reasons set out below, we dismiss the appeals and vary the assessments as indicated in paragraph 2 above.

The appellant is a floor and wall covering company. The Employees are the two directors.

On 6 July 2021, Officer Reed wrote to the appellant opening a compliance check to ensure that the claims for the Employees had met the eligibility conditions and requested information about the claims. She said that the letter should be shown to the appellant’s tax agent.

There was no immediate response but ultimately, having received authorisation to correspond with him, on 24 August 2021 the officer sent Mr Mitchell a copy of the letter and the factsheets that had been sent to the appellant requesting that the information be furnished by 9 September 2021. There was no response and on 14 September 2021 the officer wrote to him extending the deadline to 20 September 2021.

On that date Mr Mitchell furnished what he described as “most of the information”. In particular, he provided documents showing how the claims had been calculated.

On 4 October 2021, having reviewed that documentation, Officer Reed replied asking for further information including details about how the reference salary had been calculated and why the Employees’ salaries had increased after the CJRS scheme had been introduced. She requested that that information be supplied by 12 November 2021.

Again, there was no response and on 18 November 2021, the officer wrote to Mr Mitchell extending the deadline to 25 November 2021. He telephoned the officer on that date saying that he had had difficulty in getting the information from a director. He stated that he assumed that the officer would issue a Schedule 36 Information Notice (“Notice”). He confirmed that in writing, after the officer had replied stating that if the information was not provided by close of play that day she would issue a Notice. On 1 December 2021 the officer requested confirmation of the correct address for the appellant (since Mr Mitchell had argued that the original enquiry letter had not been sent to the correct address). He replied giving the address that HMRC already held.

The Notice was issued to the appellant and copied to Mr Mitchell in early December 2021 with a deadline to provide the information by 7 January 2022. On 5 January 2022, Mr Mitchell emailed the officer stating that the Schedule attached to the Notice had not been copied to him. The officer replied the following day enclosing the redated Schedule and extending the deadline until 7 February 2022. She confirmed that it was simply the information requested in the letter of 4 October 2021. A new Notice and Schedule dated 7 January 2022 was sent to the appellant.

The Schedule read:

“Statutory records are the records that tax law says a person must keep. We need the following information/documentation to complete the COVID JRS grant review. Please provide the following:

Why was the furlough claim started on March 6th, 2020?

What date did the employees stop working due to the first lockdown?

Have any other individuals, other than the 2 named employees, carried out any type of work for Ruby Flooring LTD from March 6th, 2020 to July 31st, 2020, i.e. Self-employed individuals?

How are the employees normal pay calculated? I.e. (sic) hours worked, salaried?

What were the classic CJRS claims calculations based on?

Why has both employees pay gone from £512.00/month pre CJRS, to claiming furlough payments over 2000/month?

Please provide the employment contracts for both employees, pre CJRS and post CJRS.

Please provide the business bank statements from April 1st 2020 to October 31st, 2020.

Please provide both employees payslips from April 1^st 2020 to October 31st 2020.”

On 7 February 2022, Mr Mitchell sought an extension of time on health grounds and on 9 February 2022 that was granted until 28 February 2022. The officer warned that if the information was not provided then a penalty would be applied.

It was not provided and on 3 March 2022 a penalty notice under paragraphs 39 and 46 of Schedule 36 Finance Act 2008 was issued in the sum of £300. On 9 March 2022, the officer wrote to Mr Mitchell explaining that daily penalties would be applied if there was not compliance with the Notice by 2 April 2022.

On 28 March 2022, Mr Mitchell wrote to the officer lodging what he described as a “Protective Appeal Application” in relation to the penalties and the Notice itself. He argued that the information sought was not all statutory records.

Officer Reed responded the following day, rejecting the appeal of the penalty and quoting section 2.3 of the First Direction (see paragraph 43 below). She asked Mr Mitchell to explain his stance by 12 April 2022.

On 1 April 2022, Mr Mitchell responded at some length reiterating his wish to lodge a protective appeal. He provided some of the information requested in the Notice. He stated that the increase in the Employees’ pay from £512 per month pre CJRS to claiming Support Payments in excess of £2,000 per month was “merely some kind of operational coincidence based on the company board meetings held pre covid”. He argued that neither the contracts of employment nor the bank statements were statutory records.

Correspondence ensued. A new officer, Officer Laird took over the enquiry and, on 23 November 2022, wrote to Mr Mitchell confirming that his view was that there had been an overclaim because the reference pay utilised for calculating the claims exceeded the sums indicated on the last RTI FPS submitted before 19 March 2020. He attached a document showing the calculations supporting an assessment in the sum of £47,998.25.

The following day he issued a pre-assessment letter to the appellant (at the address previously furnished by Mr Mitchell) and asked for any further information to be provided by 30 December 2021. Presumably that was a typographical error and should have read 30 December 2022. On 30 December 2022, Mr Mitchell emailed the officer complaining that the letter had been served on the directors as individuals and he had not received a copy. He rejected the calculations as “they seem excessive, or extortionate and so until persuaded otherwise are just unacceptable.”

On 1 February 2023 the Notices of Assessment in the sums of £22,872.70 for the tax year to 5 April 2021 and further assessments for £16,538.03 for the tax year to 5 April 2021 and £8,587.52 for the tax year to 5 April 2022 were issued to the appellant.

Those assessments were copied to Mr Mitchell on 6 February 2023. Correspondence ensued and the officer extended the time for appeal to 8 March 2023.

On 7 March 2023, Mr Mitchell intimated an appeal on the grounds that the assessments could be found at some future point to be raised on a false premise of “discovery” and that they were almost certainly wrong. He contended that the assessments were technically flawed and that the wrong conclusions have been reached from a flawed generic compliance check.

On 10 March 2023, Officer Laird wrote to the appellant with a View of the Matter letter reiterating what had been said in the letter of 24 November 2022. He offered a review or Alternative Dispute Resolution (“ADR”) or an appeal to the Tribunal for which action would need to be taken by 8 April 2023. He copied that to Mr Mitchell on 13 March 2023.

On 6 April 2023, Mr Mitchell requested a review.

On 17 April 2023, HMRC wrote to the appellant, copied to Mr Mitchell intimating the review process. On 27 April 2023, Mr Mitchell replied complaining about HMRC’s approach to the compliance check and making representations. A further representation was sent on 2 May 2023 stating that the appellant “had every right, and therefore legitimate expectations, to make CJRS grant claims”.

On 19 May 2023, the Review Conclusion letter was issued to the appellant and copied to Mr Mitchell. That varied the assessments to £48,489.94 due to calculation errors. The correct number of days in the claim period had not been used and the employer’s National Insurance Contributions (“NICs”) were not taken into consideration.

HMRC’s Statement of Case dated 2 November 2023 again intimated the proposed adjustments to the assessments to which we refer at paragraph 2 above.

On 18 June 2023, Mr Mitchell lodged the appeal with the Tribunal. HMRC filed their Statement of Case on 15 September 2023 and on the same day Mr Mitchell applied for ADR. A mediation meeting took place on 15 January 2024 but no resolution was agreed. The Record of Outcome stated that the “Matters in Dispute” are:

“HMRC.

It is HMRC’s position that Ruby Flooring Ltd should have used £512 as a reference salary when computing the furlough grants claimed per director. This is because the last RTI submitted to HMRC on or before the reference date of 19 March 2020 showed this amount of salary being paid to both directors.

Ruby Flooring Ltd.

Mr Mitchell’s position is that the figure he inputted onto the RTI for this salary period of 6 Feb – 5 March 2020 was £3690 per director and that this figure should be used.”

On 17 April 2024, HMRC filed their amended Statement of Case.

It is common ground that the Employees were fixed rate employees for the purposes of the CJRS legislation.

It is also common ground that, as Ms Lawrence averred, having checked the position after receiving the copy bank statements the night before the hearing, the Self-Assessment Income tax returns filed for the Employees for the tax year 2019/20 disclosed income of £12,500 and dividends of £2,000.

The bank statements for January and February 2020 had shown the Employees receiving multiple payments from the appellant in the course of each month. One employee had received a total of £2,860 in January 2020 and £3,990 in February 2020. The other had received £3,880 in January 2020 and £2,550 in the February 2020.

The main body of the First Direction, running to just three paragraphs, provided as follows:

“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 substance of the CJRS is then set out in the Schedule to the First Direction.

Paragraphs 2.1 and 2.3 read:

“2.1

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

and

“2.3

The claim must be made in such form and manner and contain such information as HMRC may require at any time (whether before or after payment of the claim) to establish entitlement to payment under CJRS.”

Paragraph 3 defines qualifying employers (essentially any employer with a PAYE scheme registered on HMRC’s RTI system on 19 March 2020). It is agreed that the appellant meets this requirement.

Paragraph 5 of the Schedule is headed “Qualifying costs” and reads:

“5.

The costs of employment in respect of which an employer may make a claim for payment under CJRS 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 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.”

With regard to paragraph 5(a)(i), HMRC refer to the definition of “relevant CJRS day” in paragraph 13.1 of the Schedule which reads:

For the purposes of CJRS –

Insofar as relevant, paragraph 67B(1) of the Income Tax (Pay As You Earn) Regulations 2003 which reads:

“…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…”.

Schedule A1 details what information regarding payments to employees must be given to HMRC and that includes “The employee’s pay frequency” [18] and “the date the payment the return relates to” [19].

Under the heading “ Qualifying costs – further conditions”, insofar as relevant paragraph 7 of the First Direction reads:

“7.3

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

7.7

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).”

Paragraph 8.2 reads:

“8.2

The amount to be paid to reimburse the gross amount of earnings must (subject to paragraph 8.6) not exceed the lower of-

(a)

£2,500 per month, and

(b)

the amount equal to 80% of the employee’s reference salary (see paragraphs 7.1 to 7.15).”

Paragraph 12 of the Schedule to the First Direction 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. In this appeal the relevant Directions are the First to the Seventh Directions and the only modification which is relevant to the issues in this appeal is paragraph 19.2 of the Third Direction which reads:

“19.2

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 21.1).

Paragraph 8(1) of Schedule 16 FA 20, provides that a recipient of Support Payments is liable to income tax if they were not entitled to a Support Payment that they received in accordance with the CJRS.

Paragraph 8(4)(b) Schedule 16 FA 20, provides that in circumstances where the recipient was never entitled to it, income tax is chargeable at the date the Support Payment was received. The amount charged is equal to the amount of the Support Payment to which the applicant was not entitled. (Paragraph 8(5) Schedule 16 FA 20).

Paragraph 9(1) of Schedule 16 FA 2020 provides:

“(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.”

Section 34 Taxes Management Act 1970 (“TMA”) provides that HMRC have a period of four years from the last day of the relevant tax year within which to raise an assessment.

It is for HMRC to demonstrate on the balance of probabilities that the assessments were properly and timeously raised. In that regard they must demonstrate that it was reasonable for Officer Laird to have raised the assessments on the basis that Support Payments had been overpaid.

The burden of proof lies with the appellant to demonstrate that, also on the balance of probabilities, the assessments, as amended, are excessive.

The last relevant RTI FPS was filed on 19 March 2020. It related to the February monthly salary period with a payment date of 5 March 2020 and the payment shown was £512 for each of the Employees; the RTI FPS was filed two weeks late in terms of the PAYE Regulations.

The figure of £3,690 for the Employees was only shown on the RTI FPSs for each of them filed on 19 April 2020 for a payment on 5 April 2020. That was after the time frame specified in the First Direction.

The appellant has not attempted to amend the RTI FPSs for February 2020.

The calculation of the reference salary by HMRC was on the basis set out in the legislation we have narrated above.

The assessments were raised because Officer Laird had reason to believe that the claims filed by the appellant were in excess of the qualifying costs permitted by paragraph 7 of the First Direction.

In summary, the Employees were paid £3,690 per month from February 2020 and therefore this is the correct reference salary. That increase in salary was agreed by the board of the appellant. National Insurance Contributions (“NICs”) were reported through PAYE based on a salary of £512 per month for 10 months and £3,690 for two months. In that regard we annex at Appendix 1 a copy of the Month 12 PAYE statement dated 22 April 2020 produced by the appellant.

Because HMRC’s online PAYE records for 2019/20 disclose the NICs, the assessments are technically flawed and therefore void.

The appellant had a legitimate expectation that their claims could be made and the assessments are unfairly excessive. The appellant relies upon KSM Henryk Zeman SP Z.o.o. v HMRC [2021] UKUT 182 (TCC) as authority for the proposition that the Tribunal has jurisdiction to consider legitimate expectation.

The Tribunal is a creature of statute and has only the powers given to it by statute and must apply the law to the facts.

We turn first to legitimate expectation. As we explained in the course of the hearing, although we had not been referred to the case, and we are not bound by it, the decision in Euro London Appointments Limited v HMRC [2024] UKFTT 996 (TC) (“Euro”) is very relevant.

HMRC had argued that the Tribunal simply did not have jurisdiction to consider legitimate expectation because section 50 TMA limited the jurisdiction to concluding whether an assessment is charged correctly and in the correct amount according to the principles of the relevant taxing provisions.

In Euro, Judge Rudolf had asked for, and received, submissions in relation to section 50 TMA. He then analysed the relevant law in the context of the CJRS and at paragraph 80 of Euro found that “Even assuming the taxpayer could establish a legitimate expectation we would not have jurisdiction to allow an appeal on that basis.”

We agree with, and adopt, both his analysis and his conclusion. We do not have jurisdiction and that ground of appeal does not succeed.

The appellant argues that the assessments are unfairly excessive. The Upper Tribunal in HMRC v Hok Ltd [2012] UKUT 363 (TCC) made it very clear that the Tribunal has no jurisdiction to consider whether or not the law is fair. Accordingly, if we find that the assessments, as varied, have been correctly and timeously calculated and issued, then we cannot consider whether or not they are fair.

The issue at the heart of this appeal is the reference salary, and in that context, the NICs.

The last RTI FPSs for the Employees submitted on or before 19 March 2020 related to the February monthly salary period and the payment of £512 was made on 5 March 2020.

HMRC accept that the Employees’ payslips for February 2020 disclose gross payments of £3,690 but argue, correctly, that those are not aligned with the RTI FPSs.

The RTI FPSs up to and including 19 March 2020 reflected in HMRC’s Business Objects Report showed payments of £512 each month.

The first RTI FPS showing a gross payment of £3,690 were filed on 19 April 2020 and related to the salary for March 2020. Mr Mitchell argues that that means that the RTI/FPSs for the 2019/20 tax year continued until 19 April 2020 which is, of course, after the end of the tax year. However, that cannot affect the explicit cut off date imposed of a CJRS day of 19 March 2020.

We accept that the £12,500 income disclosed in the self-assessment tax returns is the equivalent of 10 payments of £512 and two payments of £3,690. We also accept that the payslips disclose deduction of employee NICs.

However, that is not the point. The problem for the appellant is that the requirements of the Schedules to the Directions are very clear. As Judge Rudolf said at paragraphs 62 to 64 of Euro:

“62.

Drawing the threads together, as relevant to this case, eligibility to make a CJRS claim will exist where:

(1)

An employer operated a registered PAYE scheme on or before 19 March 2020.

(2)

A salary payment has been made to an employee on or before 19 March 2020 and that has been communicated to HMRC by RTI on or before 19 March 2020.

63.

These requirements of the Schedule to the Direction are absolute. Eligibility is determined by whether, as a matter of fact, they have been met. If they have been (subject to other matters irrelevant to this appeal) then eligibility will exist. If not, it will not. There is no middle ground. Nor is there any form of ‘reasonable excuse’ for a failure to meet any deadline imposed whether by mistake, misunderstanding or any other reason.

64.

Although not binding, we agree with that principled interpretation of the Schedule to the Direction in Carlick Contract Furniture v HMRC [2022] UKFTT 00220 (TC) (‘Carlick’) at [37], Oral Health Care Limited v HMRC [2023] UKFTT 00357 (TC) (‘Oral’) at [50] to [52] and Raystra Healthcare Limited v HMRC [2023] UKFTT 496 (TC) (‘Raystra’) at [21].”

We agree with Judge Rudolf and also agree with the analyses in the cases to which he refers.

HMRC relied on Judge Popplewell and in Bandstream Media and Corporate Communications Ltd v HMRC [2024] UKFTT 00011 (TC) where he said at paragraph 26:

“It is our view that the purpose of the legislation ….was not intended to allow an

employer, after the introduction of the scheme, to inflate an employee’s wages and thus, effectively, have the taxpayer underwrite an employee’s salary. This would drive a coach and horses through the legislation which was designed to fix an employee’s salary to that recorded on the latest RTI submission prior to 19 March 2020. To interpret the legislation otherwise would lead to an injustice”.

We have added emphasis, not only because we agree but also because that is one of the key points of the legislative scheme.

In summary, it is quite clear that the payments to the Employees of £3,690 were not included in the RTI FPSs on the relevant date, ie on or before 19 March 2020. Therefore, the appellant cannot qualify for Support Payments at the level claimed. The RTI FPS filed on 19 April 2020, albeit relating to the payment for the March 2020 payroll, is quite simply irrelevant for the purposes of the legislation. The figure of £512 is the starting point when calculating the reference salary.

The legislation does not refer to an employee’s NICs when calculating the reference salary. The fact that NICs were deducted does not assist the appellant.

It became clear latterly in the hearing, having noted the miscellaneous payments in the January and February 2020 bank statements, that the modus operandi for the directors was to be paid the £512 and that was reported when the RTI FPSs were filed. During the course of the year, the Employees being signatories on the bank accounts would draw such funds as were required. When compiling the accounts (the appellant’s year end was 30 November in each year) and completing the tax returns, Mr Mitchell, in discussion with the Employees would allocate certain payments to the said salary, others to an annual dividend of £2,000 and the balance to the Directors’ Loan Account.

In light of the way that the reference salary must be calculated in terms of the legislation it may be that, with the benefit of hindsight, the appellant may now wish that things had been done differently. However, because of the way that things were actually done, although the bank statements were interesting they did not assist the appellant since defined identifiable payments of a particular type, eg dividend or salary were not made on a regular basis.

For completeness, we confirm that we accepted Officer Laird’s rejection of the suggestion that there were systemic errors in HMRC’s collection of data. In particular, it was put to him that the RTI data in the Business Objects Report was not accurate. We accept the evidence that that Report simply reflects the data that has been filed by the taxpayer and puts it into a readable format.

For all these reasons the appeal is dismissed.

The recalculation of the assessments in the Statement of Case is correct.As requested by HMRC we vary the assessments in the amounts specified by HMRC.

The assessments are varied to £23,579.13, £16,389.36 and £8,521.45 being a total of £48,489.94 instead of £22,872.70, £16,538.03 and £8,587.52 being a total of £47,998.

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.