Planet Double Glazing Ltd v Revenue & Customs (PAYE and NICs payable by employer)

Factual and Procedural Background

The Respondents imposed tax assessments and penalties totaling £58,822.48 on Company A for the tax years 2011-2012 through 2014-2015, alleging non-compliance with PAYE and National Insurance Contributions (NICs) reporting and payment obligations. Company A was unable to provide adequate records of employees and payments, only submitting partial PAYE reports and summaries. The Respondents made assessments based on best judgment and the presumption of continuity, which Company A contested.

An enquiry was initiated by the Respondents on 6 January 2015 into Company A's PAYE records, followed by meetings with the sole director of Company A and his spouse. Multiple information notices were issued requesting detailed records, including director's loan account breakdowns. Penalties were initially imposed for failure to comply but later withdrawn after explanations. Further correspondence and meetings ensued, culminating in notices of determination under Regulation 80 of the PAYE Regulations and a Section 8 notice under the Social Security Contributions (Transfer of Functions) Act 1999 for NIC liabilities.

Company A appealed these notices and penalties, requesting independent review and alternative dispute resolution, which was refused. The hearing revealed procedural challenges due to Company A's representative's inexperience. A preliminary issue arose concerning an increased NIC amount claimed by the Respondents, which the tribunal declined to vary due to procedural fairness concerns.

Company A's grounds of appeal included exclusion of director and spouse wages from calculations, disputing the payroll cost percentage applied by the Respondents, and contesting the existence of off-record workers and the accuracy of the Respondents' approach. The Respondents relied on statutory provisions allowing best judgment assessments and asserted that the burden of proof rested with Company A to demonstrate errors in the assessments.

Legal Issues Presented

1. Whether the Respondents were entitled to make best judgment assessments under Regulation 80 of the PAYE Regulations and Section 8 of the Social Security Contributions (Transfer of Functions) Act 1999 in the absence of complete records.
2. Whether the presumption of continuity applied in the calculation of tax and NIC liabilities was appropriate and rebutted by Company A.
3. Whether the penalties imposed for careless inaccuracies under Schedule 24 Finance Act 2007 were validly applied.
4. Whether the penalty notices complied with statutory requirements and whether the decision not to suspend penalties was flawed.
5. The allocation of the burden of proof in appeals against tax and NIC assessments and penalties.

Arguments of the Parties

Appellant's Arguments

• The wages paid to the sole director and his spouse should be excluded from PAYE and NIC calculations as these payments could have been dividends or semi-fixed costs.
• Payroll costs should be calculated as 13% of turnover rather than the 20% applied by the Respondents, asserting the business never achieved the higher percentage.
• Failure to differentiate between fixed, semi-fixed, and variable costs distorted the Respondents' calculations; unpaid work by the director accounted for discrepancies.
• Actual wages paid before the PAYE scheme introduction were not taken into account properly.
• PAYE registration was not compulsory if all employees earned below PAYE and NIC thresholds.
• Most workers were paid minimum wage below tax thresholds, negating PAYE tax implications.
• No evidence existed of off-record workers.
• The Respondents' approach was confrontational, prejudicial, unreasonable, and damaging to the business.
• Records were incomplete but sufficient to produce reasonable accounts; reliance on director's loan accounts balanced discrepancies.
• Disparities in workforce size and hours worked were due to business disruptions and relocation.
• Alternative payroll calculations produced by the Appellant's representative were more accurate.

Respondents' Arguments

• The workforce was larger than declared, and PAYE was not correctly applied.
• Company A failed to comply with obligations under the PAYE Regulations regarding new employees and accurate information provision.
• Company A operated without written employment contracts and paid employees in cash, failing to keep required records.
• Payroll costs as a percentage of turnover increased after the enquiry, indicating underreporting initially.
• The best judgment assessments were based on reasonable inferences and the presumption of continuity.
• Penalties were imposed for careless inaccuracies, with disclosure being prompted by the Respondents' investigation.
• The decision not to suspend penalties was appropriate given the circumstances and improved reporting.
• Evidence from the Respondents' witness was unchallenged.
• Case law supports the burden of proof on the Appellant to show assessments are excessive.
• The Respondents rejected the Appellant's proposed payroll cost percentage as unsupported by evidence.

Table of Precedents Cited

Court's Reasoning and Analysis

The tribunal found that the Respondents were entitled to make best judgment assessments due to Company A's extraordinary lack of record keeping, including absence of employment contracts, incomplete and inconsistent payroll records, and cash payments to employees. The Respondents' assessments were based on reasonable inferences, applying a 20% payroll cost to turnover, reflecting improved reporting over time and using the presumption of continuity as supported by case law.

The tribunal rejected Company A's argument to use a 13% payroll cost figure, finding insufficient evidence and inconsistencies in the Appellant's submissions. The claim that the sole director performed significant unpaid work to explain discrepancies was not accepted, as evidence showed others performed manufacturing and fitting roles.

Regarding penalties, the tribunal found that the PAYE and RTI returns were inaccurate, constituting careless behavior by Company A due to failure to keep proper records and comply with statutory obligations. The penalties were imposed correctly under Schedule 24 FA 2007, with appropriate reductions for prompted disclosures. The tribunal upheld the Respondents' decision not to suspend penalties, finding no special circumstances warranting such suspension.

The tribunal emphasized that the burden of proof lay with Company A to demonstrate errors in the assessments and to rebut the presumption of continuity, which Company A failed to do. The tribunal also declined to vary NIC amounts at hearing due to procedural fairness concerns.

Holding and Implications

The tribunal DISMISSED Company A's appeal, affirming:

• The assessments totaling £31,372 under the PAYE Regulations for tax years 2011/12 to 2014/15;
• The NICs liability of £19,758 under the Social Security Contributions Act for the period 6 April 2012 to 5 April 2015;
• Penalties totalling £7,692.48 under Schedule 24 Finance Act 2007 for tax years 2012/13 to 2014/15.

The direct effect is that Company A remains liable for the assessed amounts and penalties. No broader legal precedent was established beyond the application of existing principles regarding best judgment assessments, presumption of continuity, burden of proof, and penalty imposition in the context of incomplete PAYE record keeping.