In Sci-Temps Limited V HMRC TC07796, the First Tier Tribunal (FTT) allowed a company's appeal against a PAYE determination. HMRC had issued the determination under the wrong PAYE regulation and the employer took reasonable care.
A new employee joined the company part way through the tax year ended 5 April 2016. The company was her only employment during the remainder of 2015/16 and all of 2016/17.
- HMRC issued the employer a code change notice for the employee which they used from April 2016.
- In September 2016 the employee contacted HMRC to advise that her annual earnings from the company were likely to be higher than those indicated in the April coding notice. A new coding notice was issued accordingly.
- Whilst the employer followed the notice and changed the code they omitted her previous pay in the deductions working sheet and as a result, there was a shortfall in her tax paid of £629.
- In November 2016 the employee called HMRC and said she was not responsible for the underpayment.
- HMRC wrote to the company advising that not enough tax had been deducted under PAYE for the employee. They issued a determination under Regulation 68 which only applies to non-RTI employers and the company was an Real-Time Information (RTI) employer, and also under Regulation 80.
The FTT considered:
- Whether the determination issued was legally valid.
- Whether the employer had failed to comply with a relevant PAYE obligation and had acted with reasonable care.
The FTT allowed the appeal, reducing the determination to nil.
- HMRC should have issued a notice and certificate under Regulation 75A and had not. They had not created a deemed liability which could be collected using a Regulation 80 determination.
- There are no legal obligations on an employer to include previous pay in a deductions working sheet unless the figure comes from an employee’s P45.
- HMRC could have collected the underpaid tax by changing the tax code again. They have a specific power for this.
- The company had taken reasonable care in operating PAYE and had acted in good faith.
The Judge was not able to rely on the bundle of legislation and documents provided by HMRC as they were the original versions and not those which applied to the tax year in question and clearly marked as such. Fortunately, she was able to locate the legislation and regulations in force at the relevant time for herself.
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RTI: Real-Time Information for PAYE
RTI is reporting payroll almost in 'real-time' to HMRC in advance of making any salary or wage payments to employees.