In Dr A Gayen V HMRC [2013] TC02556 a doctor made a successful appeal against an assessment for a PAYE underpayment and penalties, after his employer operated the wrong tax code and HMRC failed to issue the appropriate direction notice. 

The doctor worked for a couple of employers, one of whom failed to operate the correct PAYE coding as advised by HMRC. He was unaware of the error. After he completed his Self Assessment tax return HMRC made calculations which showed a £6,000 overpayment. HMRC commenced debt collection proceedings after saying that it was unable to collect the tax debt via PAYE, and penalties for late payment were imposed. 

The taxpayer appealed against HMRC’s calculations and penalty. HMRC first off claimed that he had no right of appeal against a tax calculation however, HMRC’s closure notice followed an assessment under Self Assessment and the First Tier Tribunal decided that the matter was appealable. It further decided HMRC was wrong to assess the doctor for the PAYE underpayment. The PAYE regulations state that the amount of PAYE that his employer should have deducted under PAYE should be deducted from the amount assessed.


Many taxpayers tend to cave in and just pay up in these cases, the tax law is too complicated. The additional problem is that the cost of obtaining professional assistance in making an appeal is generally prohibitive because normally there is a whole file of correspondence to wade through before the relevant facts can be established. We conclude that most people accept that whatever HMRC does is right and will therefore pay the tax due. 

In the Gayen case one would have expected HMRC to have sought recovery from the employer – under Regulation 80. If tax could not be recovered from the employer HMRC could have sought recovery by making a direction under Reg 72 or 81 from the employee. This aspect is not straightforward, as in the case of both Reg 81 and Reg 72 (4) HMRC has either to establish that the decision not to deduct PAYE was wilful and the employee colluded with the employer. Alternatively, under Reg 72(3) HMRC merely has to prove that the employer had failed to operate PAYE due to an error made in good faith. The downside for HMRC is that once it issues a Reg 72 determination the liability is transferred and it forgoes recovery of tax from the employer. In Dr Gayen’s case HMRC failed to issue a Reg 72 determination.

Real Time Reporting for PAYE should help to minimise coding errors, provided that the IT systems works as planned. However, one would expect HMRC's officers to receive the correct training to ensure that a PAYE determination is issued.