In Shamir Pravin Budhdeo, Amarjit Singh Hundal & Joshy Mathew v HMRC [2020] TC7679, the First Tier Tribunal (FTT) denied appeals by directors against regulation 72 assessments for unpaid PAYE. The amounts were earnings, the directors knew the company could not pay the PAYE and NICs and the failure to deduct was wilful.

Where an employer fails to deduct Pay-As-You-Earn (PAYE) from an employee's earnings, HMRC may seek recovery under Regulation 80. If tax is still not recovered from the employer:

  • HMRC can seek recovery from the employee by making a direction under Regulation 72 or 81.
  • HMRC must establish that the decision of the employer not to deduct PAYE was wilful and that the employee colluded with the employer.

The three appellants were directors of Intecare Homecare Limited (IHL). Two were also shareholders.

  • They previously brought appeals against penalties for failure to comply with Schedule 36 information notices. Immediately prior to the hearing, Mr Budhdeo was the subject of a COP9 fraud investigation which was closed without criminal charges. Several unsuccessful attempts to delay this current hearing meant he could not provide a witness statement.
  • In late 2008, when IHL went into administration, six PAYE and National Insurance Contribution (NIC) cheques had been refused by the bank.
  • Immediately after the administrators were appointed, the business of IHL was sold to a group (‘BVL’) where Mr Budhdeo’s brother was a director shareholder, Mr Budhdeo was a shareholder and all three appellants became directors over the next few years.
  • No liabilities were transferred but employees and future PAYE and NIC responsibilities were.
  • IHL was dissolved in 2009 with outstanding PAYE per the filed P35/P14s for 2008/09. In 2010 more P14s were filed (‘the second set of P35/P14s’) showing increased directors’ earnings. Credit was claimed for Income Tax on these earnings by the directors in their 2008/09 Self Assessment returns but the PAYE and the corresponding NIC was never paid over to HMRC.
  • HMRC issued regulation 72 directions to the directors in 2017 in respect of the second set of P35/P14’s and discovery assessments to Mr Hundal and Mr Budhdeo.
  • The directors appealed. The directors giving witness statements claimed they had not received the amounts declared on the second set of P35/P14s. One said they were a 'signing-on bonus' from BVL and not earnings from IHL. The other said they were arrears of earnings but the liability including the PAYE and NIC had been assumed by BVL when it acquired IHL.

The FTT dismissed the appeals upholding the s.72 assessments and late payment surcharges thereon:

  • They found that Mr Hundal was not a credible witness. They did not believe that as a director and 50% shareholder, he was not kept aware by his colleagues of the financial difficulties of the business or that he was as financially innocent and naïve as he claimed when he had been a director of 33 companies over a 25-year period.
  • They did not believe that he had not checked his 2008/09 tax return before it was filed.
  • Mr Mathew was also found not to be credible. Despite being IHL's financial director he said he did not know about the PAYE and NIC cheques dishonoured by the bank.

The judge said,

“One thing that is clear to this Tribunal is that we have not been told the whole story by the Appellants. Information requested by HMRC has not been provided and there has been a failure to comply with information notices issued under Schedule 36.”

The FTT found, without hesitation, that the amounts represented unpaid earnings from IHL which had accrued over the directors’ entire employment with the company.

  • Those earnings had been paid to the directors, albeit by book entry, before IHL went into administration. They were then immediately loaned to BVL to enable it to make the acquisition, with monies being transferred directly from IHL to BVL.
  • The Appellants would have been aware that IHL was insolvent and unable to pay (and did not pay) any of the PAYE or NICs on the second set of P14s. They had all approved a statement of affairs showing that the company was 'hopelessly' insolvent.
  • They received relevant payments of earnings knowing IHL did not have the resources to account to HMRC for the PAYE due. The failure by IHL was 'wilful' because IHL made the payments to BVL in circumstances where its directors knew that IHL would not account to HMRC for the PAYE due on those payments.

On the matter of discovery, these assessments were also upheld:

  • The claim by Mr Budhdeo and Mr Hundal for credit that their Self Assessment tax returns was made 'carelessly or deliberately' either by themselves or their accountant who filed the returns and their conduct in making the claims was, at the very least, negligent.
  • A hypothetical HMRC officer could not have been expected to know that PAYE credit had been improperly claimed based on the information in those Self Assessment returns.

The facts of this case are somewhat convoluted and the FTT had to work through them methodically to determine what had actually taken place, even having to determine who had filed the second set of P14's. It turned out to be the accountants.


Discovery Assessments
When can HMRC issue an assessment outside of the normal statutory time limits? What conditions must be met? What are your rights of appeal and defences?

Regulation 80 and 72 assessments for PAYE
When can HMRC assess an employer or an employee for unpaid PAYE and NICs? Who is assessed and what are the conditions?

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Shamir Pravin Budhdeo, Amarjit Singh Hundal & Joshy Mathew v HMRC [2020] TC7679