PAYE140040 - The PAYE discretion at s684(7A)(b) ITEPA 2003 and contractor loans avoidance schemes: contents: group decisions

This page of the guidance does not apply to Category 2 and 3 schemes which should be considered on a case-by-case basis

Some offshore schemes are used in very similar ways by large numbers of individuals. These schemes are not generally used by individuals who are also company directors of relevant End Clients or UK Agencies.  

Where multiple customers have used the same scheme it may be appropriate to group those customers and make a group decision about exercise of discretion, in respect of their usages.

In these circumstances, a Counter Avoidance G7 officer should review and consider all the information and available evidence we hold on the scheme to determine whether it is appropriate to group the customers and how customers within the group can be identified.

Once that group has been established, the G7 officer should determine whether exercise of the PAYE discretion is appropriate for all customers within that group. 

The decision will be based on our understanding of the scheme and the information contained within this guidance. The officer should consider all facts and available evidence when making a decision; the lists contained in the previous sections are not exhaustive.

For scheme usages which span over two periods before and from 6 April 2014 the G7 officer needs to consider the usages separately and apply the different tests independently when making a decision on whether to use the discretion.

The G7 officer should produce a scheme summary that shows the current understanding of the scheme and record their decision on whether it is appropriate to group the customers and to exercise discretion for all customers in that group, once that group has been established. 

The G7 officer should select a meaningful sample of randomly selected customer records to be individually reviewed, in conjunction with this guidance and the overall scheme summary prepared.

Deciding the size of the sample will depend on various factors and may vary for different groups. For example, for schemes that have been used by many customers, a sample no smaller than 5% of all customers in the proposed group may be appropriate. For schemes used by a small number of customers, it may be appropriate to review a higher proportion or all of the customers in the proposed group.  

For scheme usages which span before and from 6 April 2014 separate samples may be appropriate. 

The G7 officer should keep a record of the factors that they took into consideration when deciding on a meaningful sample size for individual customer records to be reviewed. 

Within the defined sample an officer should review the individual customer records and any information and documents we hold on file or we have obtained through investigating their use of the scheme, ensure the customer fits the criteria for being part of the group as already defined and decided by the G7 officer and along with the overall scheme summary and the current guidance to decide whether it is appropriate to exercise the discretion in respect of that customer.

The officer must produce a written summary for each customer review and record their view as to whether it is appropriate to exercise discretion in respect of that customer and whether that customer falls within the established group parameters. 

Where the officer is below G7, the customer summary and the view of PAYE discretion must be submitted to a Counter Avoidance officer of at least G7 for consideration.

Where an individual review shows that use of the PAYE discretion is not appropriate, the G7 considering the group as a whole should consider whether this review would affect a decision to group customers and to exercise PAYE discretion for all customers in that group. 

The G7 officer should consider all information and evidence available from the individual reviews and the scheme summary, produce a record of their findings, their view and make a decision about whether it is appropriate to group the customers and to exercise PAYE discretion for all customers in that group. 

An HMRC officer of G7 or higher grade making this decision does not need additional approval for their decision but must still record their decision and in particular the factors taken into account when considering the exercise of the PAYE discretion.  

The officer should inform the individual in writing that they are exercising the PAYE discretion to decide that the End Client or the UK Agency need not comply with the PAYE Regulations for the tax year(s) in question. If the customer provides evidence that shows that their circumstances appear inconsistent with the fact patterns found in the sample reviews and reported in the overall summary, then the case should be considered individually. If the evidence provided shows that the End Client (before 2014) or UK Agency (from 2014) had knowledge or was party of the scheme a G7 officer should consider whether this review will alter the decision to group customers and to exercise discretion for all customers in that group, once that group has been established. 

Every stage of the decision making process should be recorded for audit trail purposes and needs to include all facts, relevant information considered as well as any assumptions being made.

It is not sufficient to simply consider that because an avoidance scheme has been used and tax underpaid that it would be appropriate to disapply the PAYE Regulations in relation to a group of customers, in order to collect the unpaid tax from them.  

If you are considering using the discretion in relation to a group of customers and need advice, please refer to Counter Avoidance Operational Policy team.   

Next steps where approval has been given for s684(7A)(b) to be exercised are covered in PAYE140050.