In a recent case the tax payer, a Mr Sparrey proved he did not need to pay HMRC for an agreed tax underpayment.  This was because as a PAYE liability, prima facie, the tax should have been accounted for by the employer.

The Tribunal found that the employer and their payment agent did not take reasonable care, so HMRC should not have directed the tax to be collected from the individual taxpayer.  The latter had depended upon his employer to calculate the tax correctly and should not be penalised for their lack of care.

This case was not directly to do with Extra Statutory Concession A19, but it was mentioned, and may be of interest to those still arguing on past liabilities.

A number of underpayments we have seen have resulted from the misapplication of PAYE procedures by the employer.  This new case emphasises that, in those circumstances, HMRC have very limited powers to transfer liability to an individual employee, away from the employer.

It may also provide food for thought on other arguments where HMRC seek recompense from individual employees which may fall more aptly on the corporate body.

Transfer of liability to an individual may occur where (Reg 72 Income Tax (PAYE) Regs 2003 – SI 2003/2682).  The employer satisfies HMRC:

a)     That they took reasonable care and

b)    That the error to fully deduct was made in good faith

Or alternatively:

That the employee received the monies knowing that the employer had wilfully failed to deduct the amounts due.

Crucially, the employee has the right of appeal against an HMRC direction, so swift action and expert advice may be required.

1 thought on “Whose Liability is it anyway? – Sparrey [2014] TC 03940

  1. Fair decision. If the employer was negligent then liability follows. The employee (the reasonable man) has limited knowledge on how PAYE/NIC are calculated. How many people do you know who check their deductions each month?

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