In Stephen Hoey v HMRC [2021] UT 0082, the Upper Tribunal confirmed that the First Tier Tribunal has no power to challenge HMRC's discretion to disapply the PAYE regulations and upheld an EBT discovery assessment.

Mr Hoey was an IT specialist who participated in two contractor loan schemes, Penfolds and Hamilton, whereby he received loans from offshore Employee Benefit Trusts (EBTs).

On appeal to the FTT (see Discovery on disclosed EBT loans is valid):

Mr Hoey accepted the reasoning in the Rangers EBT case that the original payments to the EBTs were taxable as his employment income.

The taxpayer appealed to the UT on the basis that the employer's obligation to deduct PAYE was given by the PAYE regulations and that the FTT should therefore have given him credit for PAYE deducted and HMRC had no discretion on that matter.

A further aspect of the appeal related to the conditions that must be met for HMRC to make a valid Discovery assessment.

A further argument on the discovery aspect was raised: would HMRC's hypothetical officer  have been aware that there was a potential insufficiency of tax by virtue of the disclosures made on the tax return? This was also rejected by the UT, who considered that the disclosures did not provide sufficient detail for such an officer to realise that there was a loss of tax.

The final element of the case was a Transfer of Assets abroad argument. The UT found that the FTT had made an error of law in failing to deal with the matter, however as it correctly decided that quantum of the income of the “person abroad” was nil, there was no impact on the outcome.

Useful guides on this topic

DOTAS: Disclosure of tax avoidance schemes
What are rules on Disclosure of tax avoidance schemes (DOTAS)? When should you disclose your use of a tax avoidance scheme? What are the consequences of non-disclosure? How are penalties calculated?

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?

P11D: Reporting benefits and expenses
Employers have an annual obligation to complete forms P11D in respect of each employee in receipt of taxable employment benefits or expenses.

Disguised Remuneration Zone
how to settle up with HMRC in respect of any pay that has been disguised as loans 'disguised remuneration' and includes contractor loans and Employee Benefit Trust loans. 

External links

Stephen Hoey v HMRC [2021] UT 0082

Report on FTT decision: Stephen Hoey v HMRC [2019] TC07292