UT/2021/000192 - [2024] UKUT 00242 (TCC)

UBS’s case is that HMRC misdirected themselves by regarding exercise of the 7A discretion as premature because it could not be addressed until UBS’s PAYE liability had been confirmed. First the Regulation 80 determination HMRC made was final and second quantum was in any case irrelevant (except to the extent there were collection concerns but that was not apparent here).

While HMRC’s skeleton says compliance with the s696(2) obligation is a matter which may be taken into account, a proposition with which we agree, we note the November 2022 decision went further by in effect saying that HMRC were not even going to consider the 7A discretion without knowing the s696(2) figure. That refusal to consider was wrong in our view. The crux of the issue here is who to have the debate over quantification of tax liability with – will it be UBS and Mr Wood in potentially two sets of proceedings or would it just be the employee, Mr Wood? In agreement with UBS, in principle there is no reason why one needs to know the amount of the best estimate liability before the issue of the 7A discretion can be considered because that then begs the question by assuming the debate over quantification is to be had first with the employer. We also agree that to the extent finality was sought then there was sufficient finality for HMRC’s purposes that arose in the Regulation 80 determination which they issued. Barring alteration by agreement or on appeal that determination would specify the final figure.

However none of this should be taken as suggesting that the quantum of tax at issue is not at least a relevant factor. It will obviously be so for instance when it is zero and there is nothing which then turns on the exercise of 7A but its amount might also be relevant to the extent there were concerns around differing prospects of recoverability as between the employer and employee. There is no indication that is a concern in this case but it could be in others.

We would therefore agree this aspect of HMRC’s decision was a misdirection and accordingly to that extent unlawful.