On to a loser here?

On to a loser here?

Didn't find your answer?

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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By thehaggis
23rd Sep 2015 18:25

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.

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Stepurhan
By stepurhan
24th Sep 2015 09:32

Careful wording?

OP wrote:
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.

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By nogammonsinanundoubledgame
24th Sep 2015 09:40

yes, intentionally so

You have of course hit upon an important point.  In fact at the time of that employment our client was entitled to sign form P46 that it was his only or main job.  It is not uncommon for a net PAYE underpayment to arise where there are several employment sources, because the PAYE system is not perfect.  Following introduction of RTI this is now less of an issue with in-year coding corrections being more the norm.  This was in fact for 2013-14 so we were well into RTI regime.

I am unconvinced of the relevance of this line of questioning, however. S.7(3) is there mainly because there is an expectation that an underpayment under PAYE will normally get addressed and assessed through P800 procedure where not dealt with through SA.  It tacitly acknowledges that a underpayment may well arise; otherwise they could have made s.7 a heck of a lot simpler just by imposing an obligation to notify whenever there is an underpayment regardless of its cause.  S.7(4) does not ask who was at fault that gave rise to the underpayment.  It is simply satisfied that the figures get reported under PAYE, however they were arrived at

With kind regards

Clint Westwood

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By Tim Robinson
07th Oct 2015 08:29

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

 

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