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Redundancy payment lands taxpayer with extra liability
iStock_P45 redundancy_Robert Chlopas

Tribunal hits wrong note in Bell redundancy appeal


Laura Bell was made redundant twice, and on both occasions she was liable to pay further tax in respect of her termination payments. HMRC attempted to collect the additional tax due.  

6th Oct 2020
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In her first tier tribunal (FTT) appeal against tax liabilities arising from underpayments in PAYE tax (TC07820), Bell argued that her employer had made a mistake in their calculations.

The redundancy payments

Bell was made redundant on two separate occasions from the NHS, where she worked as a consultant. In 2009/10 she received £180,056 as a redundancy payment and a further payment for redundancy in 2012/13.

As a result of her first redundancy payment, her income for 2009/10 was £180,056 and she lost her personal allowance. There was an underpayment of tax £22,214.45 for that year and as HMRC was unable to collect that amount through her PAYE tax code, it issued Bell with a tax return for 2009/10 in August 2011.

Bell completed and submitted that return on 24 January 2014, which confirmed the underpayment, that HMRC had previously determined.

On 6 April 2013 HMRC issued a tax return for 2012/13. The completed return was submitted to HMRC on 20 September 2013 which determined an underpayment of tax of £3,243.

Outstanding liabilities

Bell failed to settle the outstanding debts by the due date, drawing the attention of HMRC’s debt management team in April 2014.

By April 2017 the debt management office issued a warning of bankruptcy as the taxpayer failed to meet the agreed payment terms. Bell felt she was being harassed and treated unfairly by HMRC.

Reasons for appeal

Bell appealed to HMRC on the basis that her employer had failed to deduct the appropriate tax under PAYE. She also stated that the payment made in March 2013 related to a payment in lieu of notice for the next six months, so the tax should have been assessed in the 2013/14 tax year rather than 2012/13. However, the court  determined that her employer had made a lump sum payment on the termination of her employment.

HMRC treated the appeal as being against penalties as it did not consider it possible to appeal against an outstanding tax liability. As the employing entities had ceased to exist, it was not possible to gather information on the two redundancy payments. 


The FTT confirmed that the taxpayer could not make an appeal against the additional income tax liabilities arising from her two redundancy payments, which were both determined via her self-assessment tax returns. 

This case highlights two important points:

Proof of deductions  - It is essential to retain sufficient information on payments received from employers and to understand the nature of the payments being made. If the payment relates to a termination of employment, then remember that the rules on termination payments have changed in recent years and so it is key to understand the nature of the payments being made. Generally, payments and benefits received on termination of employment are taxable when they are received.

How tax is collected - The case did not explore how the tax due under PAYE could be collected, either from the employer or directly from the employee. In the majority of cases, the PAYE regulations ensure that employees can take into account credit on amounts deducted by their employer. Under the PAYE regulations (Regulation 72 and Regulation 81) an employee would only be liable to tax if the following conditions were met:

  • The employer can prove that they had taken reasonable care to comply with the regulations and that the failure to deduct the excess was due to an error made in ‘good faith’; and
  • HMRC are of the opinion that the employee has received relevant payments knowing that the employer wilfully failed to deduct the amount of tax which should have been deducted from those payments.

However, Finance Act 2003 introduced new legislation (s 684(7A)(b) ITEPA 2003) that allows HMRC to exercise discretionary powers to disapply the PAYE regulations, thus removing the burden from the employer and permitting the tax department to seek the tax directly from the employee.

HMRC stated that in most appropriate cases, it will seek to use Regulation 72 and 81 to collect tax from an employee rather than from an employer.

Where an individual has participated in arrangements that HMRC considers disguised remuneration, then an officer may take a decision to invoke s 684(7A)(b).


The first tier tribunal struck out the decision on the basis that the dispute raised by Bell could not be appealed.

Replies (3)

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By Paul Crowley
06th Oct 2020 19:49

Why do rich people fail to pay tax on time?

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Ivor Windybottom
By Ivor Windybottom
07th Oct 2020 10:09

Case conclusion: Bell end

Thanks (1)
By richard thomas
07th Oct 2020 16:31

It seems overwhelmingly likely that the employers deducted PAYE using code 0T under reg 37 of the PAYE regs. Where the payments are large this will always undertax the liability, an unfortunate but rare example of the PAYE regs not fulfilling their mandate (see reg 14(1)(g)). So I doubt if Ms Bell had any hope of obtaining any refund or getting the employer to foot the bill under reg 72 or 81 or alternatively of invoking reg 185.

Had there been an underdeduction by the employers then the main remedy would be, as suggested by HMRC, Sch 1AB TMA (not "1A" as reported in the decision). If a taxpayer is confident that the employer had under deducted, then another remedy is to invoke reg 185 and put the amount in the return in the box on the employment pages for tax deducted at source.

And what is the point of referring to s 684A(7A) ITEPA? That has nothing to do with the scenario here and is for things like casuals and students. I am aware that HMRC have tried to misuse it in cases where they consider there to have been disguised remuneration, but that misuse is most likely unlawful - see my casenote on the Higgs and Hoey cases in the last issue of the British Tax Review.

Judge Gillett was wrong to suggest that the PAYE regulation are not justiciable at all before the FTT or that they are only about collection, but that was not relevant in the Bell case.

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