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HMRC disregard the PAYE system and issue s.684 notices to users of Edge and AML

Following the introduction of off-payroll legislation, now more than ever, contractors will be familiar with the PAYE system, be that via an umbrella or having moved onto the payroll.

Those working within compliant arrangements will be safe in the knowledge that their employer is deducting tax and NI on their behalf and that their take home will be unaffected by mistakes made. Those employers that do not operate PAYE properly face being accountable for the tax shortfall, and potentially penalties for ignoring the rules. But what happens when HMRC also ignore these rules, setting aside certainty?

Disguised Remuneration (DR) is a catch all term that HMRC use to describe tax avoidance products that attempt to represent part of a person’s earnings as something that is non-taxable, quite often a loan, advance, annuity, or some form of share issue that seeks to convert income to capital.  Since the Supreme Court decision in ‘RFC 2012 PLC v Advocate General for Scotland’ (“Rangers”), there is very little doubt that the payments received were always earnings and therefore should have had tax deducted at source by the employer under the PAYE system at the time they were due.

To collect such a shortfall, HMRC are required to issue a determination to the employer within 4 years from the end of the tax year in question.  But what happens if they do not do that?

You would hope that HMRC would accept their failure and move on a little embarrassed that they had the opportunity to assess the tax and missed the boat. We could take up a whole page with the reasons HMRC did not act in time, however it would be largely irrelevant given that HMRC now claim to have a discretion to effectively forgive the employers from their deduction and collection obligations. 

This week we have seen several taxpayers receive a notice from HMRC doing just this.  For users of schemes operated under the employer names of ‘Edge’ and ‘AML’, HMRC have forgiven the employer for not deducting tax and claim that the liability now sits with the employee.  This is despite the availability of such discretion currently being the subject of an appeal to the Supreme Court. This very likely the start of a mass issue of such notices to users of both these and other DR schemes, which carry no right of appeal but rather allow for representations to be made to the decision maker to consider further information that in most cases HMRC should already have collected.  Given that the employers are the promoters of such arrangements, is it right to shift the liability so readily from the employer without careful investigation of the facts?

If you receive such a notice you need to consider some important next steps. HMRC are indicating that representations should be made within a month and should include evidence that the end-client knew about your employment with the scheme. We have been working with our clients to identify this information following the recent decision in Hoey and are confident that it exists and have examples. Email correspondence has shown good results at uncovering this evidence and should be your starting point.

If you need any further help or want to talk through your options with no charge or obligation then please contact us.

22.12.2023 – Discover more in our follow up blog exploring HMRCs continued s.684 campaign here.

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