Hoey: credit for PAYE tax not deducted

The planning undertaken by Stephen Hoey was not particularly intricate.  He was an IT specialist who provided his services to end-users through an offshore company established by the promoters of the planning.  The company employed him at a modest salary but most of the reward for his services came through the company making contributions to a trust which duly lent the money to Mr Hoey interest-free and without any real expectation of repayment.  The planning was sold to him on the basis that he would pay tax only on the salary and on the small ‘benefit in kind’ of the loan.  Not that he stood to profit greatly from the scheme: most of the supposed tax saving was absorbed by the charges levied by the promoters.

It had been accepted, even before the case came before the First-tier Tribunal, that, following the decision in Rangers (on which we commented here) the contributions to the trust fell to be treated as employment income of Mr Hoey and as taxable on him.

Why, then, did the recent Upper Tribunal judgement in Hoey v HMRC [2021] UKUT 0082 (TCC) run to 86 pages?  And in what sense did HMRC both win and lose the case?

It’s complicated.  The case ranges widely over the Transfer of Assets Abroad rules, their interaction with EU law on freedom of movement of capital, and whether HMRC had made a valid ‘discovery’.

But the key point of Mr Hoey’s appeal was very simple: if the payment to the trust was employment income (as it was), then the legislation required tax to have been accounted for under PAYE (albeit, in the circumstances of the case, by the end-user rather than the offshore employer); and Mr Hoey was entitled in his self-assessment to be credited with that tax, regardless of whether it had actually been accounted for by the payer.

That, as a general proposition, is undoubtedly correct.

However, HMRC purported to have absolved the end-user from the obligation to operate PAYE.  Thus, that aspect of the case resolved itself into the questions (a) whether HMRC were entitled to do so; and (b) if they were, whether the result was that Mr Hoey ceased to be entitled to the credit.

HMRC won the case in the sense that the Upper Tribunal followed the First-tier Tribunal in declining to afford Mr Hoey the benefit of the tax credit.  But this was on the basis that the availability (or not) of the tax credit was, essentially, a question of collection rather than of the assessment of liability; and was thus outwith the jurisdiction of the Tribunals.  But, as the Tribunal said, ‘there is no reason to suppose the amount of the PAYE credit cannot be litigated in collection proceedings’.

And HMRC may yet be in some difficulty when it comes to those proceedings; because rather than stopping at simply saying that it did not have jurisdiction in the matter, the Tribunal went on to say what it would have decided if it had had jurisdiction:

If we were wrong in finding against Mr Hoey that the FTT lacked jurisdiction to consider the PAYE credit, we consider that, given the scope of the 7A discretion and the fact it only applies prospectively with no indication it can overturn the effect of obligations which have already been incurred, Mr Hoey would be entitled to the PAYE credit as the discretion would be ineffective to remove the PAYE liability from the end-users after those liabilities had been incurred.’

The Upper Tribunal’s obiter is not of course binding on a different court in any collection proceedings.  But we envisage that HMRC’s battle to collect from Mr Hoey (and the other 15,000 people that HMRC have estimated to be engaged in similar arrangements) may not yet be over.

For more information, please get in touch with your usual BKL contact or use our enquiry form.

This article was republished by Tax Journal and is also available here on the Tax Journal website.

This article was also republished in the June 2021 issue of ICAEW TaxLine and is available here on the ICAEW website.



Sam Inkersole

In 2022, Sam won the Taxation’s Rising Star award at the Taxation Awards in and was named in the Accountancy Age 35 Under 35.

Jon Wedge

While Jon’s client work focuses on the financial services sector, he also oversees the firm’s assurance service, as well as supporting the trainees following in his footsteps.


Elana joined us in 2017 as an ACA trainee, after graduating from Durham University where she had studied languages. She is now a manager in our assurance team.


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