In Michael John Febrey v HMRC [2018] TC6897 a director was lucky to avoid a reg 72 determination making him personally liable for unpaid PAYE. The FTT found that accounting entries for a salary paid before a company went into liquidation were not actual paid earnings.

This case had previously been decided in HMRC’s favour by the FTT. Upon appeal it was sent back to the FTT by the UT.

  • The director’s company went into liquidation in March 2008.
  • From accounting records provided to HMRC by the liquidator, his loan account appeared to show a salary had been paid of £300k.
  • He was a due a salary of £50k under the provisions of his service contract.
  • HMRC made discovery assessments for earlier years.

The FTT, in revisiting the case found that:

  • The director had no explanation for the accounting entries to his loan account.
  • He engaged accountants and it was unclear what the entries for £300k related to as he was remunerated in dividends via an associated company and the amounts did not match the remuneration in his service contract.
  • He was not aware that no PAYE and NICs had been deducted from the actual salary that he was entitled to.
  • HMRC's determination did not match the records.

Placing a lot of reliance on Hochstrasser v Mayes [1960] AC 376 the FTT analysed the situation as (1) PAYE income is earnings “from” an employment. (2) Hochstrasser v Mayes makes it clear that: (a) Not every payment made to an employee necessarily arises from his employment; and (b) To arise from his employment, a payment must be made as a reward for services rendered by the employee. (3) The amounts credited to the appellant’s holding account and subsequently to his loan account were not on account of services provided to the Company in the appellant’s capacity as employee.

The discovery assessments were dismissed.


What was possibly an accounting entry to perhaps 'balance off' a director's loan account (for whatever reason) left a director in a lot of trouble. It seems that the accounting records, or what was left of them once they left the liquidator were in such terrible mess that no one could be certain who had done what and why and the FTT arrived at a pragmatic solution. 

Useful guides

Regulation 80 and 72 determinations for PAYE
When HMRC can assess a company or its owners for failure to deduct PAYE and NICs

Directors Service contracts: tip tips
What do you put in a service contract? Do you need one? Can it double as an employment contract?


Michael John Febrey v HMRC [2018] TC6897