In HMRC v Stephen West [2018] UKUT 0100 the Upper tribunal (UT) held that the director of an insolvent company was personally liable for PAYE and NICs on a bonus paid  to clear his loan account before company went into liquidation.

Income Tax (PAYE) Regulations 2003/2682 Regulation 72 allows the liability for unpaid PAYE to be transferred from the employer to the employee if:

  • The employer wilfully and deliberately fails to deduct PAYE and
  • The employee knew this when he received remuneration.

Mr West was the sole director and shareholder of Astral Telecom Ltd (the company). It got into financial difficulty and in 2011 he was advised to put the company into liquidation.

  • There were insufficient profits available to repay his overdrawn director’s loan account by way of dividend. The liquidator advised Mr West to repay the amount by way of salary.
  • The company processed the salary correctly via PAYE. It was unable settle the amounts due to HMRC.
  • HMRC transferred the liability to Mr West.
  • The FTT, by casting vote of the chairman, allowed the appeal on the basis that there was no failure to deduct PAYE and therefore regulation 72 could not apply.

HMRC appealed (the FTT casting vote judge initially refused leave to appeal but it was granted by another judge).

The UT in allowing the appeal examined only the decision of the casting vote judge, Judge Clark and adopted the same approach as the FTT, that is to question:

  • Did Astral deduct tax on making the relevant payment and if not
  • Was the failure to deduct wilful on Astral’s part and, if it was,
  • Did Mr West know that to be the case when he received the relevant payment.

It found that:

  • Astral did not deduct tax on making the payment. A payment had been made to the director by way of credit to his loan account, the PAYE and NIC had been accounted for by the company and included in the directors tax return, but no payment of tax to HMRC had actually been made.
  • As the sole director of Astral, whilst Mr West may not have deliberately set out to avoid the application of regulation 72 because he was unaware of it and its implications, he knew all along that, no actual payment of tax could or would ever be made due to the Company's insolvent position.
  • The tribunal concluded that the failure to deduct was wilful and that Mr West was aware of it, saying:

“For a person wilfully to effect a particular legal outcome, it is not necessary for that person to be cognisant of the legal consequences of his or her actions.  It is necessary only for that person intentionally or deliberately to put in train the various actions (or knowingly to fail to do so in the case of omissions) that in the event have the material consequences in law.” 


The original FTT decision was contrary to a decision heard on similar facts and at the same time. The UT decision here not only brings this case into line with that other decision (Phillip Marsh and David Price v HMRC [2016] UKFTT TC05288) it also provides a binding precedent for future similar cases.  

The gross amount of remuneration put through the Company's accounts was £202,976. This was to ensure that the net amount of £129,150 could be credited and clear the outstanding loan account. Despite the book entries, the UT confirmed that the gross amount assessible on the director was £129,150, no grossing up was required.


Regulation 80 and 72 assessments for PAYE

Stephen West v HMRC [2016] UKFTT TC05285

External links:

HMRC v Stephen West [2018] UKUT 0100 (UT)



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