In the First-Tier Tribunal (FTT) decision of Ward v HMRC, an interesting point was addressed as to whether an employee or employer should receive a refund of overpaid PAYE. The taxpayer, Mr Ward, worked for Goodman UK. Goodman UK had not made any PAYE deductions from Mr Ward’s salary after 1 July 2009, notwithstanding that he was performing duties in the United Kingdom after that date. Following an investigation by HMRC, Goodman UK subsequently accounted to HMRC for the PAYE deductions which HMRC determined (at that time) that it should have made. However, following the first judgment handed down in February 2016, it was common ground that the revised self-assessment tax calculation for Mr Ward 2009/2010 demonstrated that Goodman UK had ended up overpaying by £5,495.20 for that year. On the other hand the revised self-assessment tax calculation for Mr Ward for 2010/2011 demonstrated that he had additional tax to pay of £4,383.40.
Mr Ward contended that he had reimbursed Goodman UK for the full amount that they had to pay HMRC and that the settlement made by Goodman UK with HMRC was intended to cover the expected liability in both years collectively. Therefore, Mr Ward contended that the overpayment for 2009/10 should be credited to him and set off against the amount due for 2010/2011.
However the FTT did not agree, stating: ‘for 2009/2010 Mr Ward can only be given credit for the maximum amount that Goodman UK were obliged to deduct from his income but failed to do so. We therefore accept HMRC’s submissions on this point and it follows that any overpayment is not payable to Mr Ward directly but must be repaid by HMRC to Goodman UK.’
In respect of 2010/11, the FTT went on to say: ‘As regards 2010/2011, there was only an obligation upon Goodman UK to deduct PAYE from Mr Ward’s income in respect of his UK workdays. Again, Mr Ward can only be given credit for the maximum amount that Goodman UK should have deducted from his salary in respect of UK workdays for this tax year and so he is liable to pay this amount personally. There is no basis on which the sum repayable to Goodman UK in respect of 2009/2010 can be set off against Mr Ward’s own personal liability to settle his tax bill for 2010/2011.’
The point was argued by Mr Ward because HMRC were seeking to charge tax geared penalties i.e. based on the amount of additional tax due. Therefore, if Mr Ward could offset the credit from 2010/11 against 2009/10, the penalty would be correspondingly reduced (to nil). But as it transpired, he was not successful and a penalty of £3,068 was applied.
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