I wish to rely on s.7(3) TMA 1970 in order to justify a client's failure to notify chargeability.
My argument is that the conditions in s.7(4) are satisfied.
He had several income sources, all employment.
All but one source had positive PAYE tax deducted at source.
One employment had zero tax deducted at source.
This was correct according to the PAYE regulations as they applied to that employment.
The income was reported by the employer to HMRC as part of the PAYE returns of that employer.
HMRC are resisting the s.7(3) exemption on the grounds that this one employment source did not have any tax deducted at source, that the reporting of the income in PAYE returns does not alter that fact, and that the conditions of s.7(4) accordingly fail.
I infer from this that had £1 tax been deducted at source then HMRC objection would disappear, but I have not put that to HMRC for agreement.
Are they right?
With kind regards
Clint Westwood
Replies (4)
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No Need for tax deducted
7(4) simply requires that the income is taken into account when making deductions or repayments of tax. It does not require an actual deduction. If PAYE was correctly applied to ALL income or payments from this source, the result of which no deductions or repayments were necessary, I would agree with you that 7(4) applies.
Careful wording?
This was correct according to the PAYE regulations as they applied to that employment.
My emboldening.
My question would be, what would be the position if you didn't look at this employment in isolation? (as implied by that wording). In other words, did they get a tax-free allowance for PAYE across all their jobs that was higher than the personal allowance? If so, how did this discrepancy arise? Only if it was HMRC's error, and there was no reason for your client to think otherwise, would I say you have a good argument. Not so much 7(4) does not apply because no tax was paid on that employment, but because no tax was paid on that employment when it should have been.
If there was no allowance issue, then I agree that you should be covered.
Coming in late to this one - but do I understand the issue correctly?
PAYE employeeTax underpaymentBrought into SA solely to collect the tax underpayment
If so, why are HMRC doing this when they have the ability to collect the underpayment through the PAYE system by coding out? Shouldn't we be asking them to cancel the SA?
Apologies if I have not grapsed the issue, I have just learned of a client's employee in a similar position.
Cheers
Tim