The First-tier Tax Tribunal has decided that an employee was not liable for his employer's PAYE under-deduction because his employer did not take reasonable care to comply with the PAYE regulations.

Employers are primarily responsible for ensuring that the correct amount of PAYE and NICs are paid for their employees. Generally, if amounts are underpaid, the employer is required to pay the difference. However, the employer can ask HMRC to pass the liability for underpaid PAYE income tax and employees' NICs to the employee. HMRC can do this if it is satisfied that the employer took reasonable care and the failure to deduct was an error made in good faith.

In this case, the employee's new employer failed to make sufficient deductions from its payments to him because his P45 did not detail his income from his previous employment. The employee did, however, provide his employer with payslips from his previous employment.

Having discovered the under-deduction, the employer’s payroll agent asked HMRC to pass the liability to the employee, and HMRC made a direction doing so.

The tribunal allowed the employee's appeal against the direction. It decided that the employer could not abandon payroll matters to its agent with neither enquiry nor liaison. The tribunal found it surprising that, as an agent dealing with tax affairs routinely, the agent did not query why an employee starting employment mid-tax year had received no previous payments that year. As the employee provided payslips to his new employer, the information about previous payments was in the possession of the new employer and ought to have come to light had enquiry been made.