PAYE140030 - The PAYE discretion at s684(7A)(b) ITEPA 2003 and contractor loans avoidance schemes: contents: other factors that may be relevant to the exercise of the PAYE discretion, where the category-specific factors are present

The Court of Appeal decision in Hoey & Ors v Revenue & Customs [2022] EWCA Civ 656 ('Hoey') provides useful guidance on applying the PAYE discretion. Paragraph 70 of the decision reads

There is no expressed limit to the circumstances in which an officer of HMRC can decide it is “inappropriate” for the payer to comply with the obligations under the PAYE Regulations. The provision recognises that, despite the detail of the PAYE Regulations, HMRC may form the view in the circumstances of a particular case, that it is not appropriate to expect an end user [or other employer] to comply with the deduction and/or accounting obligations in the PAYE Regulations.

There may be a number of factors which an officer of HMRC may consider relevant when considering use of the PAYE discretion in support of the category specific considerations outlined in the previous sections.  The use of factors in combination will strengthen HMRC’s case for using the PAYE discretion.  Some of these factors may be

• the use of a tax avoidance scheme. Where an individual has used a scheme which seeks to alter the characteristics of payments received, they may have sought to sidestep the requirements of the relevant legislation in order not to pay tax on their employment income
• the structure and nature of the scheme. Certain parts of the scheme may be hidden or contain convoluted, non-commercial structures that would not be present in a compliant arrangement.  It is also not usual for a worker to receive amounts earned as loans or other supposedly non-taxable payments
• individual's specific circumstances. Factors to consider may be representations by the individual about what the scheme aimed to achieve or the inclusion of white space notes which may indicate the individual made a conscious decision to avoid paying tax. In cases initially purporting to be trading income schemes, failure to mention and lack of information around the potential for amounts to be taxable as employment income or the availability of a PAYE “credit” could also be relevant factors
• late argument that agency rules apply. In trading income schemes where HMRC’s lack of information about the agency and difficulty in recovering tax from it flows from the individual’s late assertion that agency rules apply, this may be another relevant factor to consider