David A Marshall Jeweller Ltd v Revenue and Customs Commissioners is a stark illustration of the fact that responsibility for deducting the correct amount of tax and employee NICs lies firmly with the employer. A company failed in its appeal against a determination that it had to pay the tax it had failed to deduct and against a penalty imposed for its negligent failure to make the deduction.
The company operated a PAYE scheme for all its employees but had not deducted income tax on a bonus and salary paid to the loan account of its sole director and 50 per cent shareholder. The director had made a tax return which showed the bonus and salary but, after deducting losses of roughly the same amount, gave the figure of income tax due as nil.
The PAYE regulations do now allow HMRC to transfer PAYE liability from an employer to an employee in certain, limited circumstances, if HMRC is satisfied that some or all of the tax has been paid by the employee. (This change was made following the decision, in Demibourne Ltd v HMRC in 2005, that the employer is responsible for deducting income tax under PAYE even if the employee has paid tax on the basis that he was self-employed.). But in this case, no tax had in fact been self-assessed, as the self-assessed amount of tax on the payments in the director's return was nil. There would therefore be no double taxation if the company had to pay the tax, and thus there was no element of unfairness.