Selection of recent Tax Tribunal Cases

October 2024 – December 2024

Time for our latest round-up of some interesting recent First Tier Tribunal tax cases.

Director did not know company had failed to pay tax and NIC

Case details: Michael Burne V HMRC [2024] TC09326

HMRC sought to make Mr Burne a director of Carbon Managed Services Limited personally liable for the income tax and NIC that had not been deducted on payments made to him by the company. The basis being that Mr Burne knew that the company had failed to deduct the PAYE tax and NIC.

Mr Burne appealed against the notices issued by HMRC to transfer the liability for 2019-20 tax year and also appealed against a discovery assessment issued.

The issues in this case centred around a complicated financial situation as the company was in administration, and there was a hostile takeover attempt by a lender. Whilst it was noted that there was a failure to deduct the PAYE tax and NIC and that it was unsatisfactory that it was not known who had prepared the payroll and submitted the RTI to HMRC, the Tribunal found that Mr Burne did not know that the company was wilfully failing to deduct taxes and allowed the appeals against the notices issued.

Regarding the discovery assessment, after considering all the evidence the tribunal considered that the objective test in relation to the issue of the discovery assessment was not met and that the HMRC’s officer’s belief was not reasonable, and the appeal was allowed.

Contractor failed to take reasonable care

Case details: Evancast (Kent) Limited V HMRC [2024] TC09356

HMRC having carried out a compliance check, identified that the company, Evancast (Kent) Limited (EL) had failed to make the appropriate CIS deductions on payments made to a subcontractor. The subcontractor in question Langdale & Goodfellow (LG) being a business who had approached EL and offered to take over the engagement and payment of its self-employed workforce.  

KL appealed a decision issued by HMRC denying the business relief under Regulation 9(5) of the Income Tax (Construction Industry Scheme) Regulations 2005 in response to a claim it had made under Regulation 9(3) (Condition A). KL contended that the payments made to LG did not fall within CIS as it only provided admin and payroll services, and that EL had taken reasonable care to comply with the CIS legislation.

The tribunal found that KL did not undertake sufficient due diligence in its dealings with LG and did not seek appropriate professional advice regarding its CIS position in relation to the arrangement with LG. Thus, finding that the company had not taken reasonable care to comply with the CIS regulations and the appeal was dismissed.

Payments made under salary sacrifice scheme were liable to Tax and NIC

Case details: The Best Connection Group Limited V HMRC [2024] TC09377

This case involved whether the company Best Connection Group Limited (BCG) had a successful salary sacrifice in place and whether expenses it paid were allowable under the dispensation it had in place with HMRC.  Additionally, if a liability was found to exist then the company argued that it was entitled to relief under Regulation 72(5) of the PAYE Regulations, as it had taken reasonable care. 

The dispute between BCG and HMRC concerned the appropriate tax and NIC treatment of expenses payments covering the tax years 2012-13 to 2015-16. It relates to travel and subsistence payments made to certain BCG employees relating to travel to and from a temporary workplace either via a mileage rate where car, motorcycle or bicycle was used, or reimbursement of the costs where public transport was used and finally the expense payments made for food and drink when employees were away from home in the course of their employment.

There were 6 main issues under consideration – (1) Whether there was a valid salary sacrifice, (2) Where payments round sum allowances, (3) Whether mileage payments related to actual mileage incurred, (4) Whether payments for subsistence fell within the terms of the dispensation, (5) If a liability was established the company sought relief under Reg 72(5) and finally (6) the 2013 Regulation 80 issued in respect of the income considered due was not issued to the best of HMRC’s judgement.

This case was heard over 10 days at the Tribunal with substantial information, including several witness testimonies being presented. The tribunal concluded that (1) the salary sacrifice was valid, (2) the subsistence payments were round sum allowance but the mileage and public transport payments were not, (3) based on the evidence provided the tribunal was unable to form an opinion and that the onus was on BCG to demonstrate that it was in relation to a particular payment, (4) the subsistence and public transport payments did not fall within the terms of the dispensation, (5) a Regulation 72(5) was not appropriate as BCG did not take reasonable care and (6) The tribunal found it could not at this stage make a decision on the best judgement issue when the quantum has not yet been determined but stated that it would not be surprised to ultimately conclude that determination was not issued to best judgement.

The appeals failed except to the extent that they related to mileage payments which BCG can show relate to mileage actually incurred.