Different decisions have been reached by two differently constituted First-tier Tribunals when faced with a largely similar set of facts. In each case the issue was whether HMRC could recover PAYE and national insurance contributions (NICs) liabilities on salaries paid to the directors of close companies.

In each case the directors paid themselves large salaries but the company did not account to HMRC for the PAYE and NICs arising on those salaries. HMRC then sought to transfer the liability for the unpaid PAYE and NICs to the directors, but the directors argued in each case that the employer company had not wilfully failed to pay the tax and NICs (rather it was unable to do so due to it being in financial difficulties). As it is a statutory requirement, for the liability to be transferred from employer to employee, that the employee received the payment knowing the employer had wilfully failed to deduct PAYE and/or NICs, the directors argued that the liability could not so transfer.

On 3 August 2016, the Tribunal held in West v HMRC3 (by prevailing decision of the tribunal judge as the two members could not agree) that as the PAYE and NICs liabilities had been put through the company’s balance sheet as amounts due to HMRC this counted as a deduction for the purposes of the relevant legislation. The fact that a book entry for the liabilities had been made, which the employer company was in fact unable to pay, meant that the company had not wilfully failed to make the deduction. The taxpayer’s appeal was therefore allowed.

On 2 August 2016, in Marsh & Another v HMRC4 it was held that the PAYE and NICs had not been deducted. In this decision, it was held that the book entry (in the monthly payroll) did not show an amount had been “deducted”.

It is difficult to reconcile these two decisions, and it seems likely that HMRC will appeal the decision in West.

To view the decisions click here and here.