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houses of parliament | accountingweb | HMRC challenges another Coronavirus Job Retention Scheme
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Parliamentary CJRS debate didn’t stand up in court

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HMRC challenges another Coronavirus Job Retention Scheme claim regarding a director employee on dividend pay. Ian Holloway wonders how much Parliamentary debate can guide us.

30th Jan 2024
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As we know, the Coronavirus Job Retention Scheme (CJRS) was complicated, to say the least. However, the underlying principles were not and, very simply, if the employee was on a PAYE scheme and a full payment submission (FPS) had been sent to HMRC by the relevant date, the UK government would “pay” 80% of the employee’s salary up to £2,500 per month, reclaimable by the employer as a support payment. Of course, the CJRS changed during its existence, as did legislation and guidance. 

Apart from ensuring compliance with the relevant date, the question has always been how much the employer could reclaim from the UK government. This was dictated by the changing law and the ever-changing guidance as based on the salary that was paid on the FPS received on or before the relevant date.

The CJRS (furlough) was expensive for the UK government and, rightly, HMRC has been tasked with ensuring that the repayments to employers were correct. The first tier tribunal (FTT) heard a case at the end of 2023 between John Tann (on behalf of employee and director Graham Smith) and HMRC where HMRC claimed that the support payment was based on the incorrect (and higher) salary.

The reason for the higher reclaim all stems from a House of Commons Parliamentary debate about who could use the scheme.

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Replies (9)

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By FactChecker
30th Jan 2024 18:19

Whilst an interesting diversion through recent history (although CJRS already feels like something from a previous eon), I'm left feeling a little like I've wandered into a different universe.

Was the FTT really considering that Parliamentary debate might trump what is in the Legislation (or even that it might provide interpretation that sets a precedent without the inconvenience of going to court)?

I'll admit that my eyes started to glaze over whilst reading the Case report, so I may have missed something novel.
But as soon as we hit the claimant's reliance on "the Chancellor of the Exchequer in answering a question in Parliament from Mr Davey as to the unfairness of the lockdown to those directors who paid themselves by dividends .." - I found it hard to believe that court time was wasted on this.

I genuflect at Ian's efforts to trawl the parliamentary records (now there's a cure for insomnia), but is there really a takeaway message from this case ... beyond 'pull the other one mate'?

Thanks (6)
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By [email protected]
31st Jan 2024 10:58

Not sure there was a point to this article, really.

The Tribunal fully rejected applying any remarks made in the Parliamentary debate in favour of interpreting the text of the legislation. It feels like the judges were being well, Judges. As in, to paraphrase the outcome, "we really can't be bothered trawling through Hansard, HMRC could be wrong about what was or wasn't said, so we will take the taxpayer's assertions about the debate at face value, and that value is zero".

Ironically the case that first allowed Courts to even consider Hansard was itself a tax case -Pepper v Hart 1992, but it is still exceptional and ONLY permitted where genuine ambiguity or absurdity would result from applying the wording of the Act. Indeed some commentators have said, "the scope of Pepper v Hart has been reduced to such an extent that the ruling has almost become meaningless" [Vogenhauer].

It's certainly good to know that Ian agrees with the Oxford academic, although they may both be slightly over-egging the pudding if they are suggesting as Ian seems to, that as far as Hansard is concerned, it's No Ney Never.

The only genuine take-away from the Tribunal Decision, is that rules are clear enough, its the RTI submission date of 19/3/21 that counts, and that the "Para 7.12 exception" was not intended to and did not enable an employer to treat past dividends as though they were PAYE. End of story.

Thanks (2)
Replying to [email protected]:
Amy Chin
By Amy Chin
31st Jan 2024 18:25

So pointless you commented on it...twice ;-)

Thanks (1)
Replying to Amy Chin:
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By Paul Crowley
20th Feb 2024 16:17

Pot kettle?

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By anne in basingstoke
31st Jan 2024 11:04

I have always thought that HMRC should find a way to tax more of the income that directors take from a company, where the directors are, on the face of it, choosing to take much of their essential-for-living pay as dividends so that they can avoid National Insurance contributions. Consequently, I thought that HMRC in setting up the CJRS were absolutely right to base the available support on PAYE earnings history.

A choice NOT to contribute to Government funds on take home pay should have consequences.

Well, this may set the cat among the pigeons but I believe that we need to consider fair contributions to the Government coffers, given what we expect the Government to do for us.

Thanks (8)
Replying to anne in basingstoke:
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By [email protected]
31st Jan 2024 12:06

Tax Freedom Day is June 8th, the tax burden is 40% of GDP, the highest it has been since the 1980s. The question shouldn't be how do we extract yet more tax from an overburdened economy. Alas though you are right, whether it is Hunt or Reeves, the direction of travel is perfectly clear. I suppose its good news for tax tribunals and accountants as the Treasury dreams up ever more draconian ways of extracting its pound of flesh.

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Replying to anne in basingstoke:
By cfield
31st Jan 2024 23:09

NI was at a combined rate of 25.8% for directors of personal companies. Do you honestly think that was perfectly fair and reasonable? It's still 23.8% even now.

That's on top of 26.5% corporation tax and 33.75% dividend tax. Please don't just add all those rates up together though, as so many do, or you'll end up with totally wrong results.

The real unfairness was in the vastly different way owner-directors were treated compared to their self-employed brethren. Directors had to be doing no work at all, apart from directors duties, which was wide open to misinterpretation, whilst all the self-employed had to do, at least to start with, was claim that profits had fallen due to the pandemic. The SEISS was worth a lot more.

Of course, they couldn't really treat owner-directors differently to "normal" employees, but what they could have done was offer the same help to companies as the SEISS but deduct any claims under the CJRS. That would have levelled the playing field, but of course, they only ever use that phrase when they are trying to justify tax rises or withdrawing exemptions/allowances.

Thanks (2)
Replying to anne in basingstoke:
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By Ian McTernan CTA
02nd Feb 2024 09:55

So directors of their own companies, who have all the hassles, usually long hours, all the risk and who have to pay for the privelege of employing people should pay even more tax??

25% corporation tax followed by up to 39.35% dividend tax not enough for you?

Even basic rate is 25% plus 8.75%.

'not contribute'? Laughable.

And what's your definition of 'fair'? The people who take all the risks and pay themselves only after everyone and everything else (one of the main reasons people pay low salary and then dividends is cashflow!) should be rewarded. Those who turn up, swan around looking at their social media, etc and get paid regularly every month with the employer paying for the privelege of employing them (employers NIC) should pay more. That's 'fair'.

Thanks (1)
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By moneymanager
31st Jan 2024 13:10

"The CJRS was expensiveive for the government', no it wasn't,the whole faffing farago was expensive us and "the Pound in your pocket' is worthless as a result, 'you will own nothing and you will be happy', who said that?

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