In the latest instalment of a tax dispute saga between Michael Stainer and HMRC, the upper tribunal was asked to decide who the employer was amongst a net of companies plus one partnership, which were all run by the Stainers.
Pass the parcel
In the majority of cases, it is obvious who an employee’s employer is, and thus who bears the obligation to account for PAYE and NIC. None of the companies used by the Stainers appeared to take responsibility for the PAYE which should have been deducted from the employees, and penalties imposed by HMRC were upheld by the first tier tribunal (FTT).
The Grand Hotel
The appellants in this upper tribunal (UT) case were five separate companies and the Stainer partnership. They all carried out a variety of businesses from the Grand Hotel in Folkestone (the Grand).
A number of people worked at the hotel under contracts of employment, but those contracts did not identify any of the appellants as the employer. HMRC considered that the appellants were liable to account for PAYE and NIC, and issued various determinations and assessments.
The fact that the payments had been made to employees was not in dispute, nor was the amount of PAYE and NIC due. The issue was how the PAYE and NIC should be apportioned between the various companies and partnership which traded from The Grand; an issue which turned on who was, or who was not, to be treated as the employer for PAYE and NIC purposes.
During the period from 2005/06 to 2010/11, the appellants carried on seven different businesses from the Grand. In each year, approximately 100 employees worked there. Most were paid weekly in cash, but a small number were paid by cheque. The cheque payments were drawn from the bank account of Kentish Estates Ltd, which had been set up to manage credit card payments for the rental business operated by the Stainer partnership.
The employees’ contracts of employment purported to be with the Grand, but no such entity existed, and as such could not be the employer. Payslips were initially generated in the name of Heritage Hotels UK Limited (Heritage Hotels), which was dissolved on 9 January 2007. From 2009, payslips were produced in the name of The Grand Folkestone Hotel.
The obligation to deduct PAYE in respect of relevant payments arises under regulation 21(1) of the PAYE Regulations, which requires the employer to deduct tax on making a relevant payment to an employee. Regulations 10 to 12 deal with the situation where the relationship between two persons is not employment but is treated as such for the purposes of the PAYE Regulations. Regulation 12 is relevant to this case, as it provides that `other payers’ can be treated as employers.
Findings of the FTT
The FTT split the years under consideration into three periods, as different circumstances prevailed in each. For 2005/06 and 2006/07, they found Heritage Hotels to be the employer until it was dissolved in January 2007, but only in relation to its share of the employees of the Grand. The other businesses were the employers in relation to the costs borne in respect of their workers as shown in the accounts.
For 2007/08 and 2008/09, the appellants argued that the hotel was run on a day-to-day basis by Mr Purchault and then by Mr Silk and that those individuals should be treated as the employer. This was rejected by the FTT, who found them to be employees of the Stainer partnership, which was found to be the employer in relation to the share of the payments not borne by the other businesses.
For 2009/10 and 2010/11, the appellants accepted that The Grand Folkestone Limited should be treated as the employer from the time that it took responsibility for issuing the payslips.
The FTT rejected the appellants’ contention that the cheque payments were made by Kentish Estates Limited as an agent, finding Kentish Estates Ltd to be an employer to the extent of the payments shown in the 2008 accounts and allocations provided by Mr Stainer.
Appeal to the Upper Tribunal
The appellants appealed to the UT on the grounds that the FTT erred in its interpretation of what constitutes an employer.
The UT considered whether the FTT correctly interpreted `employer’ including a deemed employer under reg. 12. The UT found that it did and dismissed the appellant’s appeal. The FTT was correct to find that Silk and Purchault were themselves employees of the Stainer partnership, and to the extent they made payments to other employees, they did so in their capacity as employees on behalf of the partnership.
In reaching their decision, the FTT relied on the decision in Booth v Mirror Group Newspapers plc  STC 615, that it is only if an actual employee and employer relationship cannot be identified that reg. 12 comes into play, and a person making relevant payments will be treated as an employer for PAYE and NIC purposes. Where there is an actual employer, the PAYE and NIC liability falls on the actual employer.
About Sarah Bradford
Sarah Bradford BA (Hons) ACA CTA (Fellow) is the director of Writetax Ltd (www.writetax.co.uk) and its sister company, Writetax Consultancy Services Ltd. She writes widely on tax and National Insurance contributions and is the author of National Insurance Contributions 2015/16 published by Bloomsbury Professional. She can be contacted at [email protected]