In Ridgecrest Cleaning Services Pendergate Ltd v HMRC [2016] UKFTT 778 (TC), the First-tier Tribunal (FTT) allowed an appeal against determinations of underpaid tax made under Regulation 80 of the Income Tax (PAYE) Regulations 2003 (the PAYE Regulations), as HMRC had not obtained the necessary statutory consent from the Appellant to notify it of changes to employee PAYE codes electronically.

Background

Ridgecrest Cleaning Services Pendergate Ltd (the Appellant) is a cleaning services company which employs several hundred cleaners whose earnings are subject to PAYE.

HMRC sent tax code notifications to the Appellant electronically, in that the employee PAYE codes were accessible to the Appellant electronically via HMRC's PAYE online website. The Appellant overlooked the online notification and applied the old PAYE codes.

HMRC claimed that the Appellant had deducted insufficient tax in respect of two of its employees and issued determinations to the Appellant, pursuant to Regulation 80 of the PAYE Regulations, seeking recovery of the underpaid tax (the Regulation 80 determinations).

The Appellant did not dispute the calculation of the amounts claimed by HMRC but argued that it had taken reasonable care to comply with the PAYE Regulations and that any failure to deduct the correct amount of tax was due to an error made in good faith.

The Appellant also argued that the Regulation 80 determinations were invalid because although the employee PAYE codes were accessible to the Appellant electronically through the PAYE website, it had not given the required statutory consent for the codes to be sent through that medium. The Appellant had not received paper notification of the PAYE codes, and argued that it was unaware that it should have checked its online PAYE account. The Appellant argued that HMRC should recover the tax due from the employees by making a direction pursuant to Regulation 72(5) of the PAYE Regulations.

HMRC contended that the medium by which the PAYE codes were sent was irrelevant and that in any case the required consent had been given by the Appellant when it signed up to PAYE online in 2004.

With regard to Regulation 72(5), HMRC argued that a Regulation 72(5) direction could not be made once a Regulation 80 determination had been made as Regulation 80(3), which provides that a direction under Regulation 72(5) does not apply to tax determined under Regulation 80, prevented it from doing so.

FTT's decision

The Appellant's appeal was allowed.

In relation to the interaction between Regulation 80 and Regulation 72(5), the FTT concluded that once a Regulation 80 determination has been made by HMRC, although in principle it is possible for a Regulation 72(5) direction to be made, Regulation 80(3) prevents any Regulation 72(5) direction from having effect in relation to an amount of tax payable which is already the subject of a Regulation 80 determination. In the view of the FTT, once HMRC has issued a Regulation 80 determination, Regulation 80(3) prevents a Regulation 72(5) direction having effect in relation to tax covered by the Regulation 80 determination.

The FTT said that its jurisdiction with regard to appeals made against a Regulation 80 determination did not extend to matters concerning reasonable care and errors made in "good faith". Such matters could only be considered in an appeal against a Regulation 72(5) direction and as HMRC had chosen not to issue such a direction, it could not consider whether the Appellant had exercised reasonable care and acted in good faith.

With regard to the Appellant's contention that it had not given the necessary consent to be sent changes to PAYE codes electronically, under Regulation 213(4) of the PAYE Regulations, HMRC may only deliver information by electronic communications if the employer has consented to delivery of information in that way. The FTT rejected HMRC's argument that registration for PAYE online signified consent for the purposes of Regulation 213(4). The FTT said that the online registration process did not inform the Appellant in sufficiently clear terms that it would be taken to have agreed to receive PAYE notices by internet only. Given the fact that paper notifications were normally sent, and that it was therefore possible that the online PAYE facility was seen as something that could be used at the Appellant's option, the FTT was not persuaded that the Appellant had given the requisite consent to only receive PAYE notifications electronically.

Comment

With regard to the Appellant's argument that HMRC's refusal to withdraw the Regulation 80 determinations and issue a Regulation 72(5) directions had deprived it of the opportunity to raise matters relating to the reasonable care it had taken to comply with its PAYE obligations and that any errors made had been made in good faith, the FTT was of the view that the exercise of such powers by HMRC was a matter outside its jurisdiction which fell within the remit of judicial review.

Although the taxpayer in this case secured the outcome it desired, a taxpayer who wishes to challenge the manner in which HMRC has exercised its powers should give careful consideration to the correct forum for such a challenge.

A copy of the decision can be found here.