Daniel Witton v The Commissioners for HMRC
[2024] UKFTT 489 (TC)
Michael Burne v The Commissioners for HMRC
24 October 2024
[2024] UKFTT 945 (TC)
First-tier Tribunal
A company didn't pay its taxes. HMRC tried to make the director pay instead. The court said the director didn't know the company was deliberately avoiding taxes, and the company's problems were partly due to a hostile takeover attempt, so the director wasn't responsible.
Key Facts
- •Carbon Managed Services Limited (the company) failed to pay PAYE and NIC.
- •Michael Burne (MB), a director and shareholder, received payments from the company.
- •HMRC issued a Direction under Regulation 72(5) transferring PAYE liability to MB.
- •HMRC also issued a Section 8 notice for unpaid NIC and a Section 29 discovery assessment.
- •MB appealed, arguing that he did not know of the company's wilful failure to pay.
- •The company went into administration, impacting the payment of PAYE and NIC.
- •MB's salary structure involved director's loans, which were not correctly reflected in the service agreement submitted to HMRC.
Legal Principles
Transfer of PAYE liability to an employee requires a wilful failure by the employer and knowledge of that failure by the employee.
Regulation 72, Income Tax (Pay As You Earn) Regulations 2003
Recovery of primary Class 1 NIC from an employee requires the employee's knowledge of the employer's wilful failure to pay.
Regulation 86, Social Security (Contributions) Regulations 2001; Section 8(1)(c), Social Security (Transfer of Functions) Act 1999
A discovery assessment requires both a subjective belief by the HMRC officer of tax insufficiency and an objective test of reasonableness.
Section 29, Taxes Management Act 1970; Jerome Anderson v HMRC [2018] UKUT 0159 (TCC)
Wilful failure implies intention, not merely a failure to act.
R v Sheppard and Anor [1980] 3 All ER 899
Outcomes
Appeal allowed.
The Tribunal found that MB did not know of the company's wilful failure to pay PAYE and NIC before the company went into administration. The administration significantly altered the situation, and the Tribunal found HMRC's assessment unreasonable.
HMRC's Direction under Regulation 72(5) transferring PAYE liability to MB was overturned.
Condition B of Regulation 72(4) was not met because MB did not have knowledge of the company's wilful failure before the administration.
HMRC's Section 8 notice for unpaid NIC and Section 29 discovery assessment were overturned.
The Tribunal found that the objective test for a reasonable officer's belief was not met in relation to the discovery assessment. The Tribunal did not find that MB had the requisite knowledge for the NIC notice to stand.