Last December, in the case of Paul Dunstall Organisation v Hedges, the special commissioners held that the word ‘payment’ in the PAYE regulations does not mean payment only in money, but covers any payment of income assessable under Schedule E – at least where the payment is a perquisite or profit and so can be turned into money. Accordingly, when the company transferred to its director land worth #800,000, it incurred a liability to the Revenue for PAYE on that sum.
When it was pointed out that the House of Lords in CIR v Herd had held that the regulations could not have been intended to apply where there was no machinery to enable the deduction to be made, they dismissed this on the grounds that the value of the asset can be taken into account in the coding notice.
The other director’s remuneration for the year was #100,000. Tax on #800,000 amounts to #320,000. As a mere accountant, I find it hard to see how parliament might have believed allowing for an adjustment in the coding notice was an adequate machinery to allow #320,000 to be deducted from a gross salary of #100,000 (which is probably around #53,000 net). The commissioners, unfortunately, seem to have felt it so self-evident how this feat of magic might be achieved that they did not feel it necessary to explain their reasoning.
The payment was made in 1988/1989, so the case took over ten years to reach the special commissioners. It seems a straightforward point on straightforward facts. During much of those ten years, it has been possible to get a case before the special commissioners relatively easily. Why did it take so long? Is it the fault of the taxpayer, or did the Revenue itself delay listing the case for so long? If it is the latter, why? Surely they were not seeking to pressurise the taxpayer by deliberately leaving the worry of a possible large liability hanging over its proprietors?
Surely they were not deliberately raising the stakes in their favour by letting the liability clock up ten years’ worth of interest? It must be in the interest of the integrity of the tax system for the Revenue to explain how such a long delay occurred.
Another interesting point is that, in 1994, the then government introduced legislation to apply PAYE to tradable assets. Last year, the government extended it to cover readily convertible assets. The minister told parliament: ‘We are dealing with cases in which employers provide an asset that is readily convertible into cash to avoid obligations under PAYE.’ That turns out to be a half-truth. She did not say to ‘seek to avoid’. She did not say the Revenue did not consider the legislation necessary, as it believed the PAYE regulation already imposed a tax liability.
Clearly, by June 1998, the Revenue must have been a long way into preparing its case against Paul Dunstall. Surely a minister needs to be frank with parliament, not seek to pull the wool over members’ eyes? It is unlikely, with a built-in Labour majority, that parliament would have rejected the proposed clause if the minister had told the whole truth. But it might have looked at it a bit more closely. Was she afraid of such scrutiny?
Or was she telling parliament all she knew, and the Revenue had opted not to tell of the pending case?
Whatever the reason, we now seem to have double taxation. Section 203 requires PAYE to be deducted from perquisites. Section 203F requires PAYE to be deducted from an amount equal to the best estimate of the amount chargeable, a notional figure, and not the perquisites themselves, even though the amount is identical.
Normally, where legislation is introduced for the avoidance of doubt, it contains a let-out if the amount is already taxable. It is odd that this particular piece of legislation, introduced at the time when the Revenue was actively pursuing a case on the very point, does not do so.
The chancellor should introduce that let-out in the next Finance Bill.
Or better still, sweep it away completely. One of the reasons the tax system is so complex is that redundant provisions are rarely reviewed.
Where it is clear that a provision is not needed, it is in everyone’s interest to repeal it.
Robert Maas is a partner with Blackstone Frank
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