In Chapter Trading Ltd v HMRC [2015] TC04626, an employer was held liable for PAYE failure: its software failed to deduct any tax from an employee's wages and the employer did not investigate the issue.

  • HMRC issued successive PAYE codes for an employee.
  • A coding on a cumulative basis resulted in the amount of tax due exceeding the employee’s pay for the relevant pay period.
  • The employer's payroll software had been set up to deduct no tax in these circumstances, and it did not do so for several successive pay periods. This led to an underpayment of £694 for 2011/12.
  • The software had generated an exception report.
  • HMRC initially said that they would collect the underpayment via the employee’s PAYE code in 2014/15; however the employee suggested that the underpayment was the fault of the employer, and that they should make good the amount.
  • Upon investigation, HMRC agreed that the company had not taken reasonable care to operate PAYE correctly and should therefore pay the amount.  The company appealed, contending that HMRC should issue a direction under Regulation 72 in order to collect PAYE from the employee.


The company argued that it had no discretion over the application of PAYE codes. Whilst this was correct, the FTT found that deducting no tax when there was a tax liability due was clearly incorrect, and that the company should have investigated the reports generated by its software as a reasonable person could be expected to do. The appeal was dismissed.


Tax guide: Regulation 72 and 80 PAYE for employers

Case: Chapter Trading Ltd v HMRC [2015] UKFTT TC04626