The First-tier Tribunal case of Portslade Dental Care Ltd and HMRC [2013] UKFTT 341 (TC) is a timely reminder of the employer’s obligations under the PAYE Regulations, the importance of record keeping, and, to an extent, basic Tribunal survival tactics.
As an employer you are obliged to deduct the correct amount of tax under PAYE from payments made to your employees. “Correct,” that is, as in “taking reasonable care to operate PAYE in accordance with any PAYE code number issued by HMRC”. In general, you remain liable to account to HMRC for the PAYE tax which you ought to have deducted even if – for whatever reason – this exceeds the amount you have actually deducted.
Sometimes mistakes happen. Provided you’ve taken reasonable care and made (or not made) deductions in good faith, you can ask HMRC to absolve you of responsibility and instead collect the tax from your (temporarily unjustly enriched) employee. Or, perhaps more likely, ex-employee: you may feel that a degree of circumspection may be in order if you have under-deducted tax from a current employee. This is what regulation 72(5) is all about.
Portslade had operated the wrong code for one employee and as a result had under-deducted tax. HMRC declined to apply regulation 72(5) so as to collect from the employee. Portslade appealed to the Tribunal. The question to be decided was whether Portslade had taken “reasonable care” to comply with the PAYE regulations. If they had, they were off the hook.
There was no disputing that HMRC had issued coding notices for the employee to Portslade. However, for whatever reason, they weren’t passed to the agent operating Portslade’s payroll. No-one could say why: Portslade neither attended the hearing, nor sent along any professional representation. So the case could only be determined on the documents before the Tribunal. And, as the Tribunal put it “the Appellant has not shown any system that had been in place as a means of handling its tax compliance obligation… Had there been even a rudimentary record-keeping system within the Appellant, the fact that [the employee’s] details were not being passed on to the new agents should have shown up.” In the absence of demonstrating the existence of any system Portslade could scarcely demonstrate that it had taken reasonable care. Appeal dismissed.
Conclusions to be drawn by employers?
- Recognise that the default position is that the buck stops with you.
- Put in place documented systems to show that you are doing your best.
- If mistakes happen, consider objectively whether they happened despite your systems or because of them (or lack of them)
- If you appeal to the Tribunal, give yourself the best chance by at least turning up and giving your side of the story
And if you think a regulation 72(5) determination might be in order, please get in touch with your usual contact partner at BKL for advice, or use our enquiry form.