T09634 - [2025] UKFTT 01097 (TC)

The appellant is a market research participant recruitment and public opinion polling company based in London. For PAYE purposes, the appellant is a Real Time Information (“RTI”) employer.

Ms S joined the appellant on 4 January 2021 and was one of four employees plus the two directors. The appellant’s accountants, TWB Accountants Limited, managed the payroll for the appellant.

On the new employee form dated 7 January 2021, Miss S ticked a box stating “as well as my new job, I have another job …”.

On 8 February 2021, HMRC issued a tax code notice to the appellant with an effective date of 6 April 2021. The tax code was D0. That means that the higher rate of tax is applied to all income and the personal allowance was not taken into account.

A further tax code notice was issued on 22 June 2021 with an effective date of that date and it again stated that the tax code was D0.

On 13 March 2022, having received information from Ms S’s other employer, HMRC issued a further tax code notice for the same tax year with an effective date of 13 March 2022. The tax code was 887T and it stated that Ms S had previous pay of £42,385 and tax of £8,069.36 had been deducted.

In April 2022, the appellant changed accountants and those accountants used a different electronic payroll system.

Ms S left the employment of the appellant on 31 August 2022.

On 6 June 2023, HMRC wrote to the appellant at the business address held on the employer PAYE record. That letter advised that the appellant had used the tax code 887T but had not used the previous employment pay and tax figures in the payroll calculations. The appellant was instructed to send a Full Payment Submission (“FPS”) in the sum of £8,888.24 or to amend the form P35 or alternatively, if they disagreed, to provide an explanation and show how they had taken reasonable care to operate PAYE.

On 1 August 2023, following an update of the business address being intimated to HMRC, a copy of that letter was reissued to the new address.

That letter read: “It appears that you didn’t take off enough PAYE tax from the earnings paid to [Ms S] for the tax year 2021 to 2022”. Under that text was the following box:

The letter continued “We think that this is because you did not use PAYE correctly. Tax code 887T was issued to you on 11 March 2022 which included P45 figures from a previous employment. The tax code 887T was used but you did not use the previous employment’s (sic) pay and tax figure in your payroll calculations”.

On 10 August 2023, the director of the appellant replied confirming that they had investigated the matter internally. The appellant accepted that “there was a processing error” with the electronic payroll system operated by the then accountants and that error had meant that the earnings in the other employment of Ms S had not been taken into account.

The appellant explained that when Ms S joined the appellant, she was still doing some paid work for her previous employer in order to ensure an orderly handover of responsibilities to her replacement. They were not sure how long that previous employment had continued but “it certainly continued into the 2021-22 tax year”.

A P45 was not furnished when she joined the appellant and it would appear that no P45 was ever received. They had been unable to recover the tax from Ms S as they had been unaware of the underpayment because HMRC had not intimated that to them until 2023, which was after Ms S left the appellant’s employment. They asked that the underpayment be recovered from Ms S.

On 26 October 2023, HMRC issued a “Notice of Regulation 80 Determination” which stated:

“This Determination shows the amount of tax we consider is due from you as an employer. It has been made to the best of our judgement. The Notice is addressed to you as required by law, but if you have a professional adviser or agent, let him or her see it immediately.

The tax due under Regulation 67G of the Income Tax (Pay as You Earn) Regulations 2003 is shown above. This tax has not been paid to HMRC nor has HMRC certified the tax under Regulations 75A, 76, 77, 78 or 79”.

The tax due was £8,888.24.

On 14 November 2023, the appellant appealed the Determination referring to the letter of 10 August 2023 and reiterating the arguments therein.

On 19 January 2024, the appellant wrote to HMRC, who were seeking payment of the tax, pointing out that they had appealed the Determination but had had no response in relation to that employee or, indeed, in relation to a Determination in respect of another employee which they had appealed on 21 December 2023.

On 28 March 2024, HMRC responded to the letters of 14 November 2023 and 19 January 2024, noting that the underpayment had been caused by a processing error but rejecting the argument that the appellant should not be responsible for that. HMRC offered a review.

On 23 April 2024, having taken professional advice, the appellant requested a review. They asked HMRC to consider Sci-Temps Limited v HMRC [2020] UKFTT 314 (TC) (“Sci-Temps”).

They pointed out that Judge Redston had concluded that:

Therefore, because no P45 had been provided to them and the tax code notice with the details of previous pay and tax was the third such notice in the tax year, HMRC had not followed the correct process.

The appellant had exercised reasonable care and would not have expected to find unexplained figures at the end of a coding notice and would have expected the code to have included all the required adjustments.

On 26 September 2024, HMRC issued a Review Conclusion letter upholding the Determination. That letter referred to the Grounds of Appeal which were as set out in the letter of 10 August 2023 and also referred to the appellant’s request that HMRC consider the decision in Sci-Temps.

The review officer distinguished Sci-Temps on the basis that the pay and tax in that case related to a previous tax year, whereas the appellant had been aware of the fact that Ms S was still working for her previous employer whilst employed by the appellant and that had continued into the tax year 2021/2022.

The officer referred to the argument that the 877T code was the third code issued by HMRC and stated:

“However, this was the first code issued in this tax year, following a change to the employee’s circumstances”

The officer referred the appellant to HMRC’s guidance on tax code changes.

On 25 October 2024, the appeal was notified to the Tribunal.

It was argued for the appellant that they had acted in good faith and with reasonable care adhering to the earlier coding notice that did not reference any previous pay adjustments. They again relied on Sci-Temps arguing that:-

In summary, the Determination should be set aside on the basis that there was no statutory requirement to apply the previous pay adjustment or alternatively the appellant had acted with reasonable care in following the coding instructions.