Giuliani v Revenue And Customs (INCOME TAX - PAYE - application of the Income Tax (PAYE) Regulations 2003 - delivery of P45 / P46 to new employer) [2021] UKFTT 239 (TC)

FTT-Tax
Giuliani v Revenue And Customs (INCOME TAX - PAYE - application of the Income Tax (PAYE) Regulations 2003 - delivery of P45 / P46 to new employer)
[2021] UKFTT 239 (TC) · 2021-03-30
[76]76 . In our judgment, contrary to the latter part of para 37 in the decision in Charlton , there is no place for the idea that a discovery which qualifies as such should cease to do so by the passage of time. That is unsustainable as a matter of ordinary language and, further, to import such a notion of staleness would conflict with the statutory scheme. That sets out a series of limitation periods for the making of assessments to tax, each of them expressed in positive terms that an assessment “may be made at any time” up to the stated time limit. 218. So long as the statutory requirements for a discovery are satisfied, including the statutory time limits, an assessment can be raised. HMRC made a discovery of an error relating to the Appellant’s income. W hen the Appellant filed his returns for the years under assessment, he carelessly declared to HMRC that he had zero income. The Appellant had not read the guidance notes when completing his tax returns. An amount of income that ought to have been assessed to income tax was not assessed by the Appellant and so HMRC raised an assessment to make good the loss of tax. 219. We therefore find that the discovery assessments were validly raised. T he conditions in sections 29 & 36 TMA 1970 have been satisfied and the assessments which have been issued are valid. The Third issue 220. The third question is whether the Appellant is entitled to credit for the ‘sums treated as deducted’ - the PAYE deductions that the Bank should have made but failed to make, in an appeal against a discovery assessment. 221. We are invited by the Appellant to find that there has been no loss of income tax for the purposes of section 29 of the TMA once the sums treated as deducted under Regulation 188 of the PAYE Regulations are taken into account. Therefore, the Appellant submits his appeal should be allowed because there has been no loss of tax which can be discovered. 222. HMRC argue the FTT has no jurisdiction to make a decision about sums treated as deducted for the purposes of Regulations 185/188 on an appeal against a discovery assessment - because Regulations 185/188 only apply to the enforcement stage or collection of tax by HMRC pursuant to section 59B TMA. 223. Following the hearing of this appeal, we invited the parties address four specific questions in writing. Thereafter we invited them to file further written submissions following the Upper Tribunal decision in Stephen Hoey v Revenue and Customs: [2021] UKUT 82 (TCC) , which was decided some two weeks later on 12 April 2021. Mr Chacko filed written submissions on 7 May 2021 which addressed all our questions and the arguments on which he relied in light of the decision in Hoey . The Appellant’s submission on the third issue 224. Mr Chacko, for the Appellant submitted that if a P45 or P46 were delivered by the Appellant, or the Bank should have selected statement B on the P46, the Appellant should receive a credit for the amount of tax that should have been deducted from him by the Bank. This would mean that there was no understatement of outstanding tax liability and there could be no loss of tax for the purposes of section 29 of the TMA. 225. He submitted that tax that an employer should have deducted under PAYE but did not so deduct is (for these purposes) treated as if it had been paid to HMRC when calculating an employee’s tax liability, and it is removed from the “tax payable” under their self-assessment. 226. The Appellant’s omission of his employment income from his tax return would have meant that the return understated his income and the tax chargeable for the year. However, if the Bank were required to deduct that tax but failed to do so, this would mean that he would not actually have understated his outstanding tax liability (the “tax payable”) for the year. HMRC would have been required to collect any underpaid tax from his employer. This is the general way that errors in the application of the PAYE system are dealt with: a failure to deduct the right amount of tax leads to a liability against the employer, not the employee. 227. He submitted that this comes from the definition of a self-assessment in s 9 of the Taxes Management Act 1970 (“TMA”), as recently explained by Judge Morgan in the FTT in Lancashire and ors v HMRC [2020] UFTT 407 (TC) (‘ Lancashire ’). 228. Mr Chacko’s argument was made up of the following steps. 229. TMA s 8 provides relevantly as follows: 8(1) For the purpose of establishing the amounts in which a person is chargeable to income tax and capital gains tax for a year of assessment, and the amount payable by him by way of income tax for that year, he may be required by a notice given to him by an officer of the Board -(a) to make and deliver to the officer…a return containing such information as may reasonably be required in pursuance of the notice… (1AA) For the purposes of subsection (1) above— (a) the amounts in which a person is chargeable to income tax and capital gains tax are net amounts, that is to say, amounts which take into account any relief or allowance a claim for which is included in the return; and(b) the amount payable by a person by way of income tax is the difference between the amount in which he is chargeable to income tax and the aggregate amount of any income tax deducted at source and any tax credits to which section 397(1) of ITTOIA applies….. (5) In this section and sections 8A, 9 and 12AA of this Act, any reference to income tax deducted at source is a reference to income tax deducted or treated as deducted from any income or treated as paid on any income. (emphasis added) 230. TMA s 9(1) requires the return to include:
“a self-assessment, that is to say - (a) an assessment of the amounts in which, on the basis of the information contained in the return and taking into account any relief or allowance a claim for which is included in the return, the person making the return is chargeable to income tax and capital gains tax for the year of assessment; and (b) an assessment of the amount payable by him by way of income tax, that is to say, the difference between the amount in which he is assessed to income tax under paragraph (a) above and the aggregate amount of any income tax deducted at source …” 231. Therefore, sums to be treated as deducted at source reduce the sum of payable tax on a self-assessment return. 232. The requirement to make payment following submission of a tax return is dealt with by s 59B TMA. Regulation 185 of the PAYE Regulations makes clear that the tax “treated as paid” for those purposes includes tax that the employer should have deducted but did not: (b) the difference mentioned in section 59B(1) of TMA (payments of income tax and capital gains tax: difference between tax contained in self-assessment and aggregate of payments on account or deducted at source). (2) For those purposes, the amount of income tax deducted at source under these Regulations is the total net tax deducted during the relevant tax year (“A”) after making any additions or subtractions required by paragraphs (3) to (5). (3) Subtract from A any repayments of A which are made before the taxpayer's return and self-assessment is made under section 8 or 8A of TMA (personal return and trustee's return). (4) Add to A any overpayment of tax from a previous tax year, to the extent that it was taken into account in determining the taxpayer's code for the relevant tax year. (5) Add to A any tax treated as deducted, other than any direction tax, but— (b) only to a maximum of that amount. (6) In this regulation— “relevant tax year” means— (a) in relation to section 59A(1) of TMA, the immediately preceding year referred to in that subsection; “tax treated as deducted” means any tax which in relation to relevant payments made by an employer to the taxpayer in the relevant tax year— (a) the employer was liable to deduct from payments but failed to do so , or “the taxpayer” means the person referred to in section 59A(1) of TMA or the person whose self-assessment is referred to in section 59B(1) of TMA (as the case may be). (emphasis added) 233. Similarly, when an assessment other than a self-assessment (such as a discovery assessment) is raised against a taxpayer, tax that should have been deducted is assumed to have been deducted, under Regulation 188: 188— (1) In this regulation, “assessment” means an assessment other than one under section 9 of TMA (self-assessment). (2) The tax payable by the employee is— Where B is the total net tax deducted in relation to the employee's relevant payments during the tax year for which the assessment is made, adjusted as required by paragraph (3); and C is so much, if any, of B as is subsequently repaid. (3) For the purpose of determining the tax payable by the employee, and subject to paragraphs (4) and (5)— (i) the employer was liable to deduct from relevant payments but failed to do so , or (ii) the employer was liable to account for in accordance with regulation 62(5) (notional payments) but failed to do so; (b) make any necessary adjustment to B in respect of any tax overpaid or remaining unpaid for any tax year; and (c) make any necessary adjustment to B in respect of any amount to be recovered as if it were unpaid tax under section 30(1) of TMA (recovery of overpayment of tax etc) to the extent that— (ii) the total net tax deducted was in consequence greater than it would otherwise have been. (4) No direction tax is to be included in calculating the amount of tax referred to in paragraph (3)(a). (5) If a direction is made after the making of the assessment, the amount (if any) shown in the notice of assessment as a deduction from, or a credit against, the tax payable under the assessment is to be taken as reduced by so much of the direction tax as was included in calculating the amount of tax referred to in paragraph (3)(a). (6) Instead of requiring payment by the employee, [HMRC] 1 may take the tax payable by the employee into account in determining the employee's code for a subsequent tax year. “direction” means a direction made under regulation 72(5), regulation 72F or 81(4) in relation to the employee in respect of one or more tax periods falling within the tax year in question; “direction tax” means any amount of tax which is the subject of a direction; “tax payable under the assessment” means the amount of tax shown in the assessment as payable without regard to any amount shown in the notice of assessment as a deduction from, or a credit against, the amount of tax payable. (emphasis added) 234. Section 29 provides relevantly as follows: 29 Assessment where loss of tax discovered (1) If an officer of the Board or the Board discover, as regards any person (the taxpayer) and a year of assessment - (a) that any income which ought to have been assessed to income tax, or chargeable gains which ought to have been assessed to capital gains tax, have not been assessed, or (b) that an assessment to tax is or has become insufficient, or (c) that any relief which has been given is or has become excessive, the officer, or, as the case may be, the Board may, subject to subsections (2) and (3) below, make an assessment in the amount, or the further amount, which ought in his or their opinion to be charged in order to make good to the Crown the loss of tax…” 235. Mr Chacko submitted that HMRC’s position is that, whether or not the Bank was required to deduct higher rate PAYE, their assessment against the Appellant should be upheld because the amount of income should have been recorded in his self-assessment, which is therefore insufficient. Presumably they also maintain that the “loss of tax” is the amount of tax that should have been paid, whether to be paid by the Appellant or the Bank. The fact, in their view, that Regulation 188 means that (if the Bank were required to deduct higher rate) no tax could actually be collected from the Appellant (effectively he would be treated as already having paid it), makes no difference to the proper amount of the s 29 assessment. 236. Mr Chacko submitted that there are two reasons why the PAYE credit would, in principle, be relevant to s 29. The first is that, to the extent that the PAYE credit was available, the original self-assessment would not be “insufficient”; and the second would be that there would not be a “loss of tax”. 237. HMRC are understood to argue that the question of whether the Bank should have deducted higher rate tax is irrelevant to the outcome of the appeal: this presumably entails both (1) the error in the Appellant’s self-assessment, both as to tax chargeable and to tax payable for each relevant year; and (2) the quantum of the “loss of tax” in s 29(1), are the same whether or not the Bank failed to deduct the right amount (or, put another way, whether or not the Appellant is entitled to credit for the tax that should have been, but was not, deducted). 238. Before going on to the relevant authorities, Mr Chacko addressed the issue of “loss of tax” in this situation. If the Appellant was not required to pay higher rate tax to HMRC under his self-assessment, because he had the PAYE credit (and was therefore treated as already having paid that amount when the s 59B calculation is carried out, whether or not the PAYE credit forms part of the self-assessment itself), then there was no “loss of tax” resulting from any errors or insufficiencies in his self-assessment: there could not be, because he had paid what he was required to pay. 239. The “loss of tax” was a deficiency in the Bank’s PAYE returns to HMRC, which should have been accounted for under PAYE Regulation 68 and HMRC could have demanded under PAYE Regulation 80. The Appellant’s carelessness, if established, did not cause that loss of tax in a relevant way: it may have contributed to HMRC failing to become aware of the loss of tax at an earlier stage, but it was not a loss of tax by reference to the Appellant’s self-assessment obligation. Put another way: the s 29 assessment cannot be correcting a “loss of tax” if, even if that assessment is upheld, HMRC would still “lose” the same tax because the Appellant is deemed (by virtue of the PAYE Credit) already to have paid it. The authorities 240. Mr Chacko addressed the question of whether the FTT has jurisdiction to consider the deductions under Regulations 185 and 188 in an appeal against a discovery assessment or whether they only applied to enforcement proceedings (in the County Court) pursuant to section 59B TMA. 241. In Lancashire , HMRC argued that the amount that should be “treated as paid” was not within the jurisdiction of the Tribunal - it was only an issue when Regulation 185 (or, for a discovery assessment, Regulation 188) was applied and HMRC sought to collect the tax. Judge Morgan rejected HMRC’s argument that amounts that should be “treated as paid” were not within the jurisdiction of the Tribunal to consider in an appeal against an assessment. 242. Mr Chacko submitted that in Lancashire , HMRC argued that the amount that should be “treated as paid” was not within the jurisdiction of the Tribunal, only being an issue when Regulation 185 (or, for a discovery assessment, Regulation 188) was applied and HMRC sought to collect the tax: the credit for tax that should have been deducted but was not would be something the taxpayer could raise in collection proceedings but not before the Tribunal on appeal. 243. Judge Morgan rejected this at [172]-[173], holding that the reference to tax treated as deducted in s 8(5) TMA, and therefore in the definition of a self-assessment, included sums treated as deducted because (in that case) regulation 185 treated sums that an employer was required to deduct as having been deducted. 244. The Judge stated at paragraph 172: The fact that regulation 185 is stated to apply only for the purposes of s.59B and that s.9(1)(b) does not specifically cross refer to that provision is not of itself sufficient to indicate that a more restrictive interpretation is to be given to the terms “income tax treated as deducted” when used in s.9(1)(b) than that suggested by its natural and ordinary meaning: (1) it appears that the term as used for the purposes of s9(1)(b) is drawn deliberately widely and non-specifically. There is no cross-referral to any provision which applies to treat income tax as deducted (whether under the PAYE system or otherwise). (2) I can see nothing to indicate, whether in s9(1)(b) or s59B, that the legislature intended to make a significant distinction as regards the taxpayer’s position in relation to (a) income tax chargeable on earnings which, in effect, s59B(1) itself, in combination with the PAYE rules, provides is to be treated as income tax which has been deducted, and (b) income tax which is treated as deducted from or treated as paid in respect of income which is otherwise chargeable to tax under other provisions......... (3) Moreover, it would be out of kilter with the overall scheme of the self-assessment, tax payment and appeal regime if, as is the result of HMRC’s interpretation, the taxpayer is required to assess a sum which does not accord with the sum he will actually have to pay and cannot appeal to the tribunal against any conclusion by HMRC as regards the availability of a tax credit or the amount of any such tax credit. 245. Judge Morgan, having rejected HMRC’s argument that the amount that should be “treated as paid” was not within the jurisdiction of the Tribunal, held that (para 173) the tribunal can, accordingly, reduce those assessments, as amended by HMRC, to take account of the tax credits. 246. Mr Chacko submitted that there is extensive previous case-law on the collection of underpaid PAYE from employees. This has typically come before the Tribunal in cases where HMRC has invoked Regulation 72 to remove the PAYE credit. It is important therefore to see what Regulation 72 actually does. Regulations 72-72B provide: 72 Recovery from employee of tax not deducted by employer (1) This regulation applies if— (a) it appears to the Inland Revenue that the deductible amount exceeds the amount actually deducted, and (b) condition A or B is met. (2) In this regulation and regulations 72A and 72B “the deductible amount” is the amount which an employer was liable to deduct from relevant payments made to an employee in a tax period; “the amount actually deducted” is the amount actually deducted by the employer from relevant payments made to that employee during that tax period; “the excess” means the amount by which the deductible amount exceeds the amount actually deducted. (3) Condition A is that the employer satisfies the Inland Revenue— (a) that the employer took reasonable care to comply with these Regulations, and (b) that the failure to deduct the excess was due to an error made in good faith. (4) Condition B is that the Inland Revenue 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. (5) The Inland Revenue may direct that the employer is not liable to pay the excess to the Inland Revenue. (5A) Any direction under paragraph (5) must be made by notice (“the direction notice”), stating the date the notice was issued, to— (a) the employer and the employee if condition A is met; (b) the employee if condition B is met. (5B) A notice need not be issued to the employee under paragraph (5A)(a) if neither the Inland Revenue nor the employer are aware of the employee's address or last known address. (6) If a direction is made, the excess must not be added under regulation 185(5) or 188(3)(a) (adjustments to total net tax deducted for self-assessments and other assessments) in relation to the employee. (7) If condition B is met, tax payable by an employee as a result of a direction carries interest, as if it were unpaid tax due from an employer, in accordance with section 101 of the Finance Act 2009. 10. The employee has a right of appeal against a Regulation 72 direction, under Regulations 72B and 72C: 72B Employee's appeal against a direction notice where condition A is met (1) An employee may appeal against a direction notice under regulation 72(5A)(a)— (a) by notice to the Inland Revenue, (b) within 30 days of the issue of the direction notice, (c) specifying the grounds of the appeal (2) For the purpose of paragraph (1) the grounds of appeal are that— (a) the employer did not act in good faith, (b) the employer did not take reasonable care, or (c) the excess is incorrect. (3) On an appeal under paragraph (1) that is notified to the tribunal, the tribunal may— (a) if it appears that the direction notice should not have been made, set aside the direction notice; or (b) if it appears that the excess specified in the direction notice is incorrect, increase or reduce the excess specified in the notice accordingly. 72C Employee's appeal against a direction notice where condition B is met (1) An employee may appeal against a direction notice under regulation 72(5A)(b)— (a) by notice to the Inland Revenue, (b) within 30 days of the issue of the direction notice, (c) specifying the grounds of the appeal. (2) For the purpose of paragraph (1) the grounds of appeal are that— (a) the employee did not receive the payments knowing that the employer wilfully failed to deduct the amount of tax which should have been deducted from those payments, or (b) the excess is incorrect. (3) On an appeal under paragraph (1) that is notified to the tribunal, the tribunal may— (a) if it appears that the direction notice should not have been made, set aside the direction notice; or (b) if it appears that the excess specified in the direction notice is incorrect, increase or reduce the excess specified in the notice accordingly. 11. It is important to note, in the context of this dispute, exactly what a Regulation 72 Direction does. It removes the employer’s liability for PAYE that they should have (and didn’t) deduct (Regulation 72(5)) and it removes that same amount from the PAYE credit (Regulation 72(6)). It does not, apart from that, make any difference to the amounts of tax chargeable or payable by the employee for the year. 247. Therefore, Mr Chacko submitted that, if an employee successfully overturns a Regulation 72 Direction, that does nothing to the underlying income tax position: it merely restores the PAYE credit. In such a case the employee is placed back in the same position as the Appellant is in this dispute, assuming he is entitled to the PAYE credit. The outcomes in terms of the FTT’s jurisdiction and the disposal of any substantive appeal against a s 29 assessment should therefore be the same where HMRC has unsuccessfully invoked Regulation 72 as they are in this case. 248. In this case, for example, if HMRC had issued a Regulation 72 direction with their assessment, to protect themselves in case the Appellant did show he had submitted a P45, then the Appellant would have argued on appeal that the Regulation 72 was invalid because he was not aware, when he received the payments of earnings, that the wrong amount was being deducted. If he succeeded in that argument, all that would do was remove the Regulation 72 direction and restore his entitlement to the PAYE credit. If HMRC are correct that his appeal should be dismissed even if he is entitled to that credit, it would mean that if they had unsuccessfully invoked Regulation 72, and he had appealed, his appeal would still have had to be dismissed. 249. Mr Chacko submitted that this is not the historic understanding of the Tax Tribunals, nor (it appears) HMRC. Regulation 72 does not contain any provisions fixing a payment obligation on the employee. That is why HMRC will usually issue a Regulation 72 direction together with either a closure notice or a s 29 assessment. There is authority to the effect that, in PAYE cases, where an employee has been assessed to the sum that should have been (and was not) deducted by the employer, and Regulation 72 has been used by HMRC, the employee’s appeal against the assessment (and not only the appeal, if any, against the Regulation 72 Direction under 72B or 72C) will be allowed unless HMRC can establish the conditions for a direction under Regulation 72 PAYE. 250. He submitted that there are three relevant Upper Tribunal or High Court authorities, being HMRC v Imtiaz Ali [2011] EWHC 880 (Ch) , West v HMRC [2018] STC 1004 and Hoey v HMRC [2021] UKUT 82 . West 251. In the recent Upper Tribunal case of West v HMRC [2018] STC 1004 (“ West ”), the Chancellor (Sir Geoffrey Vos) and Judge Berner reviewed the operation of the PAYE system and how it allocates liabilities between the employer and employee. This was a case where the taxpayer, being owner and director of a company in financial difficulties, was awarded a sum sufficient to pay off his loan account with the company after deduction of tax. On his tax return, he included the full sum as income but recorded the tax as deducted (see that decision at [10]). In fact the company did not account for the tax, and HMRC issued a Regulation 72 Direction transferring liability to Mr West, against which he appealed. 252. The Upper Tribunal examined and explained the interaction of the taxpayer’s liabilities with the PAYE Credit. The analysis of the legislative regime is clearly a core part of the reasoning of the Upper Tribunal. The Upper Tribunal explained the consequences, for the Tribunal appeals system, of a Regulation 72 direction at [22] - [24] as follows: 22. If a valid direction is given under regulation 72, under the self-assessment system the employee will not be entitled to credit for the amount which should have been, but was not, deducted by the employer. The employee will accordingly be liable for income tax on the taxable earnings without the benefit of that tax credit. 23. The employee has two rights of appeal in this respect. The first, by regulation 72C of the PAYE Regulations, is an appeal against a direction notice under regulation 72(5A), namely when condition B in regulation 72(4) is met… 24. The second, and corresponding, avenue of appeal is against an assessment or amendment to a self-assessment under section 31 TMA. The powers of the FTT on 20 such an appeal are set out in section 50 TMA as follows: “(6) If, on an appeal notified to the tribunal, the tribunal decides— (a) that the appellant is overcharged by a self-assessment; … (c) that the appellant is overcharged by an assessment other than a self-assessment, the assessment or amounts shall be reduced accordingly, but otherwise the assessment or statement shall stand good. (7) If, on an appeal notified to the tribunal, the tribunal decides (a) that the appellant is undercharged to tax by a self-assessment … (c) that the appellant is undercharged by an assessment other than a self-assessment, the assessment or amounts shall be increased accordingly.” 253. Mr Chacko submitted that the Upper Tribunal did not hold that the only method of challenging a Regulation 72 Direction was the right of appeal against the direction itself in Regulation 72C: it was open to the taxpayer to challenge the effect of the direction, by appealing against an assessment that sought to establish his liability to the tax. It is clear from the quotation from section 50 of the TMA that the Upper Tribunal understood this to mean that the taxpayer could argue that, because the Direction was invalid, they had been overcharged by the assessment, and the Tribunal could reduce the quantum of the assessment accordingly. 254. The basis for this is that, absent a valid Regulation 72 Direction, the taxpayer would be entitled to credit for the tax that should have been deducted under PAYE (i.e. would be in the situation the Appellant is in if he can show that the Bank should have deducted higher rate PAYE). The same result must follow in this case: if HMRC have not even attempted to invoke Regulation 72 and the Tribunal is satisfied that the PAYE credit should be available, the assessment should be reduced under s 50, given that the Upper Tribunal held that that would be the outcome if HMRC invoke Regulation 72 ineffectively. 255. West was quoted as authoritative by the High Court in Hall (Liquidator of Ethos Solutions Ltd) v Nasim [2021] EWHC 142 (Ch) at [76]: “If a valid direction is given under regulation 72 , under the self-assessment system, the employee will not be entitled to credit for the amount which should have been, but was not, deducted by the employer. The employee will accordingly be liable for income tax on the taxable earnings without the benefit of that tax credit. The employee has two rights of appeal in this respect. The first is by regulation 72C of the PAYE regulations and the second is under section 31 / 50 TMA …” 256. Mr Chacko submitted that consistently with West , the standard practice in appeals where Regulation 72 directions have been made is to allow appeals against discovery assessments if it is shown that the Regulation 72 direction was invalid and therefore that the taxpayer should be given credit for tax that should have been deducted. For example, in Febrey v HMRC [2018] UKFTT 764 , HMRC raised s 29 assessments for 2005/6, 2006/7 and 2007/8, in each case because HMRC said that PAYE should have been applied and they had made Regulation 72 Directions. Appeals were allowed against all three assessments: the first two because there had been no employment income, but the third because the Regulation 72 Direction was invalid (see the FTT at [174] - [175]). The Tribunal allowed the third appeal: it did not (as HMRC’s analysis would require) dismiss it and leave it for the County Court to apply the PAYE credit. 257. Mr Chacko submitted that where an employee has appealed against s 29 assessment on the grounds that the terms of a Regulation 72 Direction are not met, and the Tribunal agrees, that merely brings the employee back to the position of the Appellant (assuming he succeeds in showing that either his P45 or P46 arguments are good). If HMRC are correct to say the PAYE Credit is irrelevant to the quantum of the assessment, that would mean that in those appeals, the employee’s appeal would be dismissed (despite their success on the Regulation 72 arguments). As set about above, this is not the case. Imtiaz Ali 258. Mr Chacko submitted that the same provisions were considered, in a different context, by the High Court (Warren J) in HMRC v Imtiaz Ali [2012] STC 42 (“ Imtiaz Ali ”), a case where HMRC were applying for the continuation of a freezing order. Mr Ali had received various sums (“the Payments”) from a company of which he was a director. He denied these were income. HMRC took the view that they were, and so issued both a Regulation 72 Direction and an assessment (see Warren J at [3]-[4]), applying for a freezing order on the same day. Mr Ali argued (when the matter came back to court for an inter partes hearing) that the order was improper as he had no liability under the assessment until 30 days after it was made. 259. Warren J was very clear that prior to the service of the Regulation 72 Direction, Mr Ali was not required to self-assess the Payments: at [8], “Clearly, in relation to the income which has been made subject of the direction… Mr Ali did not need to self-assess the payments, although if they were income they should have been shown on his return…” and at [57], “Until the direction was given it must have been doubtful that HMRC had a cause of action for the PAYE because Mr Ali himself was not liable…”
It important that, as far as Warren J was concerned, the “cause of action” was the liability to tax under the self-assessment or discovery assessment system, and not the payment obligation under s 59B TMA: he specifically rejected Mr Ali’s argument to that effect, which was the basis for Mr Ali’s claim that the freezing order was premature. 260. This was part of Warren J’s reasoning. A major argument relied upon by Mr Ali was that, because s 59B only imposed an obligation to pay 30 days after the assessment, the freezing order was premature and so made wrongly (see [11]). Warren J accepted (following Bingham J, as he then was, in Siporex ), that a freezing order (then, a Mareva injunction) “will not be granted to an applicant who has no cause of action against the defendant at the time of the application…” (see Warren J at [18]). 261. Mr Chacko submitted that if the making of the Regulation 72 Direction only affected s 59B, and not the assessment itself, then Warren J would have been wrong to state at [57] that “Until the direction was given it must have been doubtful that HMRC had a cause of action for the PAYE because Mr Ali himself was not liable…” This was important because Warren J was considering whether HMRC had delayed in making their application: he held that they could not have applied until they had made the Regulation 72 Direction but that they could perhaps be criticised for failing to issue “the direction and the assessment much earlier…” 262. Mr Chacko submitted that Warren J considered and rejected the possibility that, by analogy with Director of Asset Recovery Agency v McCormack [2008] STC 1097 , Mr Ali might have been required to include the Payments in his self-assessment and that meant that there was a pre-existing cause of action, based on the obligation to account for tax: at [40], “... in our case there was no failure to submit a return and when the return was actually submitted there was no obligation to self-assess the payments. Therefore, one cannot argue, except in relation to capital gains tax, that there is, in accordance with Pitcher J’s decision, a cause of action via the route of section 59….” The reason Mr Ali did not need to self-assess the payments was because the Regulation 72 Direction had not been made when he filed his self-assessment and so the liability was still that of his employer (i.e. under the PAYE credit) (see Warren J at [8] and [57]) and it was because of this point that Warren J did not need to decide whether or not McCormack was correct. 263. Warren J decided (see [44],[49]) that there was a sufficient cause of action (albeit one that only required payment 30 days later) when the Regulation 72 Direction and the assessment had both been made. 264. Warren J specifically considered the effect of the PAYE credit (that being the way liability shifts from the employee to the employer) on the self-assessment at [51], where he considered (as part of his weighing exercise) the degree to which Mr Ali had failed in his obligations:
“the failure, on HMRC’s case, of Mr Ali to comply with his statutory obligations to include his income on his return. This is not to say that his self-assessment was wrong because at that stage the tax liability was not his. It only became his as a result of the direction on 17 February…” 265. Mr Chacko submitted it was therefore part of the reasoning of Warren J that, absent a Regulation 72 Direction transferring liability to an employee, that employee would not be liable under an assessment to tax on income where PAYE should have been deducted. Such an assessment would not have given rise to a cause of action and no freezing order could have been made. 266. Mr Chacko submitted that the Appellant is in exactly the position of an employee who has not yet had a Regulation 72 Direction made (the situation considered in Imtiaz Ali ) or one who, on appeal, has succeeded in showing that it should not have been made (the situation considered in West , and applied in Febrey ). Hoey 267. Mr Chacko submitted that the recent Upper Tribunal case of Hoey did not consider any of the authorities above. However, it took the view that the Tribunal had no jurisdiction to consider the availability of the PAYE credit, because the reference to tax “treated as deducted” in s 8 TMA did not include tax treated as deducted under either Regulation 185 or Regulation 188, and that therefore the PAYE credit did not affect either the amount of tax payable under sections 8 and 9 (self-assessment) or the amount of tax payable with which an assessment under s 29 is concerned (see Hoey at 107). 268. Mr Chacko submitted that unfortunately, the Upper Tribunal in Hoey was given the inaccurate impression that there was no consideration of these provisions above the level of the FTT, only being directed to Burton in the Upper Tribunal which does not analyse them: see Hoey at [64]. Conclusion 269. Mr Chacko submitted it is difficult to reconcile Hoey with West or Imtiaz Ali , or the various cases allowing appeals where a taxpayer shows that HMRC were wrong to make a Regulation 72 Direction. 270. Mr Chacko submitted that in the s 29 assessment context relevant to this appeal, it may be possible to reconcile the decisions as follows: while the “tax payable” under a self-assessment ignores the PAYE Credit ( Hoey ), and that means that the self-assessment is insufficient as a matter of tax chargeable and tax payable (triggering s 29(1)(a) or (1)(b)), there is no “loss of tax” for the reasons dealt with above, and therefore the appeal should be allowed. 271. If the problem with a s 29 assessment where the PAYE credit applies, but Regulation 72 has not been used (or has not been used successfully) is that the “loss of tax” is zero, that would explain why (as held in West ) an employee can challenge a Regulation 72 Direction by appealing against the assessment, and why (as held in Imtiaz Ali ) no cause of action arises until HMRC makes the Regulation 72 Direction. An assessment without a valid Regulation 72 Direction removing the PAYE Credit would be reduced on appeal because it would be excessive, even if (strictly speaking) the PAYE Credit did not make a difference to the self-assessment figure for “tax payable” (as held in Hoey ) and so there was still an “insufficiency” in the tax payable for s 29 purposes. 272. However, Mr Chacko accepted it may be that it is impossible to reconcile these three decisions. He submitted that it was unfortunate that HMRC did not refer the Upper Tribunal in Hoey to either West or Imtiaz Ali , both of which they were party to, both of which are recent decisions of the superior courts, and both of which are (at the least) highly relevant to how the PAYE credit interacts with obligations under self-assessment. 273. He submitted that by failing to draw the Upper Tribunal’s attention to West and the general practice of how the Tribunals deal with the consequences of Regulation 72 Directions removing the PAYE credit, the Upper Tribunal in Hoey may have been left without fully appreciating quite how chaotic the implications are if the PAYE credit is not relevant to the quantum of an assessment or self-assessment. If assessments should be upheld even where the credit is available, this is not just a matter of saying the dispute should be in the county court (see Hoey at [101] and [108]) but rather it will frequently require the multiplication of proceedings. Any attempt by HMRC to invoke Regulation 72 is likely to result in two sets of proceedings. Moreover, difficult questions of legislative interpretation (such as what the P46 provisions actually require and mean) would routinely be held to be outside the jurisdiction of the Tribunal that has been set up to deal with them. However (as here) the taxpayer cannot simply go to the County Court, as there may also be issues in the assessments that are unequivocally matters for the Tribunal. 274. Mr Chacko submitted that if the three decisions cannot be reconciled, then there is no consistent authority on the question whether the PAYE Credit is relevant when deciding how much tax should have been declared, i.e. whether there is an under-assessment of tax for s 29 purposes. 275. He submitted that in the absence of consistent authority, the Tribunal encouraged to follow the FTT’s analysis in Lancashire , which is consistent with West and Imtiaz Ali . Recognising that the wide and general words in s 8(5) to tax “treated as deducted” refer generally to all systems of deemed deduction (including the most common system of deductions and deemed deductions, the PAYE system) is both the most natural meaning of that provision and allows the Tribunal machinery to operate coherently. 276. In answer to the points raised by the Tribunal as to the meaning of section 29(1) TMA, Mr Chacko submitted that use of the word “charged” “the amount … to be charged in order to make good to the Crown the loss of tax” is not a specific reference to “chargeable” rather than “payable” tax. An assessment might be made if HMRC discover an insufficiency in either figure, but if there is no additional tax to pay then there is no “loss of tax” and the assessment should be reduced accordingly. Discussion on the third issue 277. Despite Mr Chacko’s valiant efforts, we reject the argument that the Appellant is entitled to receive a credit for the amount of PAYE income tax that should have been deducted from his earnings by the Bank but was not. 278. We are bound by the Upper Tribunal decision in Hoey v HMRC [2021] UKUT 82 (TCC) to find that sums treated as deducted under Regulation 188 of the PAYE Regulations do not apply to section 29 TMA and cannot be considered in this appeal against the discovery assessments. We are satisfied therefore that there has been a loss of tax which HMRC is entitled to recover by way of making a discovery assessment. 279. We are bound by the recent authority of Hoey to find that no credit should be given under section 8(5) of the TMA and Regulation 188 when taking into the amount of tax payable by the Appellant as assessed by the section 29 TMA assessments. We are bound to find that credit for PAYE deductions is a matter is only justiciable in collection or enforcement proceedings under section 59B of the TMA (in the County Court) and not in an appeal against a discovery assessment. 280. We are therefore satisfied that there was a loss of tax to the Crown for the purposes of section 29(1) TMA 1970 and no account can be taken of PAYE credits that should be treated as having been deducted. We are satisfied that Regulation 188 regulation only affects the amount to be paid by or collected from the Appellant through PAYE. Any sum of PAYE income tax which may be treated as deducted by virtue of Regulation 188 is not appealable or justiciable in appeal to the FTT against a discovery assessment. 281. In Hoey , the UT firstly dealt with the question of whether the amount of tax to be paid to HMRC at the collection stage is a separate and subsequent step to the assessment of tax. The UT held at paragraph 95 of its decision that: 95. In our view the better view however is that s59B is a further sequential step: (1) This is consistent with the structure of TMA, which works through the provisions on assessment, then what HMRC can do with the assessment, and then the FTT powers. Section 59B sits in a separate section on payments, which comes after the parts on assessment and appeals, but before the section on collection and recovery. (2) There is no cross reference to s59B in ss8 and 9 as one might expect if s59B were to be incorporated or rolled up into the s8/s9 adjustments. In contrast s59B refers back to s8/9 concepts which suggests the steps in s8/s9 have already taken place. (3) Section 59B takes the assessment as a starting point which assumes the assessment function has already taken place. (4) That s59A is a further step, showing an actual amount payable “bottom line figure”, is not the same as what is in the assessment, is consistent with the view taken by the UT in Walker although this point should not be overstated as there was not any specific reasoning explaining that view (see [79] above). (5) It is consistent with the reference to s59B(1) TMA in the explanatory notes to the Income Tax Act 2007 when describing what the calculation of income tax liability deals with. Those notes state under the heading “Chapter 3: calculation of income tax liability” that : “The calculation does not deal with amounts of tax suffered (eg under PAYE or by way of deduction at source) as these are set off against a person’s liability rather than deducted in arriving at it. See section 59B(1) of TMA”
. This is supportive of our view, but its importance should not be overstated.[282]The UT decided that Regulation 185 only applied to deductions for PAYE credits in enforcement proceedings under s.59B TMA. At [98] it stated:
‘ We agree with HMRC that the specific reference to s59B in Regulation 185 means it does not have a reach outside of s59B’
. At [99] it distinguished and disapproved the FTT’s decision in Lancashire which is relied on by the Appellant. 283. The UT then considered Regulation 188 at [104]-[107]:[104]Regulation 188 is functionally similar to Regulation 185. It fulfils a similar adjustment function to the tax payable amount in a non-SA assessment. It similarl y takes the act of assessment as a given. It appears in the same part as Regulation 185 in the PAYE regulations. We see no reason to make a distinction between Regulation 188 and Regulation 185, and to say that, despite Regulation 185 not affecting s9 self- assessments, that Regulation 188 has reach into the tax payable amount under a non-SA assessment. 105.As to the wide general wording of the deeming, regarding tax deducted at source, in sections 8 and 9, it might be argued why then does the reference to tax treated as deducted not exclude the tax treated as deducted under Reg 185? The answer is that it does not need to. Regulation 185 is restricted to the purpose of 59B. The adjustments in s59B take place at a later stage to s9(1)(b) /s8. So, as at the stage where s8/9 TMA is considered, there is no Regulation 185 deemed deduction that has at that point been established and therefore no need for it to be excluded at that stage.106. As mentioned above, HMRC point out the reference in s8(5) to tax "treated as deducted" has a clear function without needing to encompass PAYE treated as deducted HMRC gave the example of two provisions in the Income Tax (Trading and Other Income) Act 2005: s414 in the chapter imposing a tax charge for stock dividend income, and s530 in the chapter imposing a tax charge to gains from contracts of life insurance, under which a person liable to tax was treated as having paid income.107. We conclude the PAYE credits under Regulations 185 do not affect the amount of tax payable with which sections 8 and 9 are concerned. Similarly, we conclude Regulation 188 does not affect the amount of tax payable with which an assessment under s29 TMA is concerned. As those self-assessment and assessment provisions are the only relevant sources of the FTT's jurisdiction, the effect of the PAYE credit is not something which falls within the FTT's jurisdiction. 284. The decision in Hoey is consistent with other decisions such as Higgs and Others v HMRC [2020] UKFTT 117 (TC) where the FTT stated at [57]:
“I have concluded that the PAYE Regulations are not justiciable in this Tribunal.”
In Walker v HMRC [2016] UKUT 32 (TCC) at para 39 the Upper Tribunal stated: “It is, of course, correct that section 59B is not justiciable before the FTT, being concerned with matters of collection and enforcement.” 285. The UT decision in Hoey is also consistent with the case of Burton v HMRC in the FTT - [2009] UKFTT 320 (TC) and the UT - [2010] UKUT 252 (TCC) . In the FTT decision the Tribunal stated at [16]: “16. It is clear that an employer has a statutory duty to deduct tax in accordance with the relevant PAYE regulations. Failure to do so will render the employer liable to account for such tax whether or not it has in fact been deducted. But I do not accept Mr Yerburyʼs argument that, absent specific provision to this effect, a breach of statutory duty on the part of the employer, directly or through its agent, or by HMRC, can prevent an assessment on the employee for the amount of an under-deduction. My Yerburyʼs proposition was of a general nature and he did not direct me to anything in the PAYE Regulations that would have the effect of removing from the Appellant his liability to pay tax on his earnings otherwise than to the extent PAYE had been deducted at source.” 286. This position was upheld by the UT where it stated at [20]: “20. It is not in dispute that the underlying aim of the legislation is to deduct the “correct” amount of tax from payments of emoluments - and indeed it appears to achieve this in the overwhelming majority of cases. However there will always be a minority of cases where this legislative aim cannot be achieved. There are specific provisions in the legislation to address circumstances where the “correct” amount of tax has not been (or cannot be) deducted from payments (for example the direct collection provisions in section 203(2)(c) Income and Corporation Taxes Act 1988 and the provisions of section 59B(1) TMA dealing with the interaction of self assessment and PAYE). The existence of these provisions means that the legislative purpose must include the collection of tax from taxpayers in circumstances where it was not deducted under PAYE. A purposive approach to the construction of the legislation must therefore include dealing with circumstances where - for whatever reason - the “correct” amount of tax had not been deducted from payments of emoluments. In our view, neither of Regulations 101 nor 101A [the predecessors to Regulations 185 and 188] - construed purposively - were intended to relieve Mr Burton of his liability to tax in excess of basic rate, viewing realistically the circumstances under which he received his emoluments.” 287. Further, the UT’s decision in Hoey is consistent with the proposition that the sums to be treated as deducted under section 8(5) of the TMA do not apply PAYE credits to section 29 discovery assessments. Further, sums treated as deducted under section 8(5) of the TMA are explicitly stated to apply to self-assessments under section 9 TMA and partnership returns under section 12AA but not expressed to apply to discovery assessments under section 29 of the TMA. This is consistent with not taking any account of sums treated as deducted under the PAYE Regulations when considering a tax loss for the purposes of section 29(1) of the TMA. 288. We are not satisfied that the decisions in West or Imtiaz Ali are directly on point nor binding authority on the facts of this case. Mr Chacko’s arguments, while ingenious, require analogies and inferences to be made based on assumptions concerning Regulation 72 directions made or not made. In contrast, we are bound by the ration in [107] of the Upper Tribunal’s decision in Hoey which directly applies to the issues in this case. Furthermore, we respectfully agree with its reasoning - it has provided a logical analysis of the interplay between the relevant provisions of the TMA and those of the PAYE Regulations. 289. We are therefore satisfied that any credit for PAYE deductions that should have been treated made by the Bank for the purposes of Regulation 188 cannot assist the Appellant in his appeal against the discovery assessments. He is not relieved of his liability to pay tax in excess of the basic rate under the discovery assessments even though he did provide the Bank with a P45 or P46 and they failed to apply the Basic Rate code. We have made the factual findings in relation to the first issue that we did in the event that this decision is further reviewed and to assist any appellate tribunal or court. There may also be consequences of our findings for any collection or enforcement proceedings against the Appellant but we make no comment upon those. 290. We also made findings of fact in relation to the first issue in order to satisfy ourselves that our interpretation of Regulation 188 and section 29 of the TMA was just and fair in light of all the circumstances of the case. Therefore, we should explain that we are satisfied that there is no real injustice in this result. Notwithstanding the finding that the Appellant delivered the Bank a copy of his P45 or P46 at the relevant time in early 2010, that the Bank applied the BR code incorrectly and failed to deduct sufficient tax, the following points remain. 291. First, the Appellant is not precluded from raising the same arguments at the collection and enforcement stage of proceedings. We say nothing more about the applicability and merits of such arguments at that stage. 292. Second, the Appellant has had the benefit of large sums of income from the Bank which has been undertaxed for the two tax years. He has enjoyed the benefit of an excess of income and underpayment of income tax for a decade on the basis that neither he nor the Bank have repaid HMRC. There has been a significant actual loss of tax to the Revenue for over ten years. We wish to align ourselves with what was said by the UT in Burton at [20]: ‘A purposive approach to the construction of the legislation must therefore include dealing with circumstances where - for whatever reason - the “correct” amount of tax had not been deducted from payments of emoluments. In our view, neither of Regulations 101 nor 101A [the predecessors to Regulations 185 and 188] - construed purposively - were intended to relieve Mr Burton of his liability to tax in excess of basic rate, viewing realistically the circumstances under which he received his emoluments.’ 293. Third, the Appellant carelessly failed to declare his employment income in his self-assessment returns in January 2011 and 2012. 294. Fourth, had the Appellant filed accurate returns, he himself might have identified his chargeability to income tax, the under deduction of tax through the Bank’s PAYE deductions, assessed the balance of tax remaining payable and made the relevant payment of tax at the time. Alternatively, the anomaly would likely to have been identified by HMRC at that time and the Appellant, or Bank, would have been required to repay the balance of tax owed. The Appellant’s failure to declare his income from employment and under deduction of tax is a more proximate cause of HMRC continuing to suffer the loss of tax than the initial failure by the Bank to deduct sufficient tax. 295. Fifth, by failing to file accurate returns in January 2011 and January 2012 the Appellant restricted HMRC’s opportunity or ability to issue directions under Regulation 72 or Regulation 80 at that time either requiring the Appellant or the Bank to repay the outstanding tax. By not filing accurate returns and not repaying the sums of tax owed, he reduced HMRC’s opportunity to identify the tax loss at that stage and decide whether to pursue the Appellant or the Bank for the unpaid tax by making directions under Regulation 72 or Regulation 80. It is difficult for the Appellant to pray in aid the absence of Regulation 72 direction and its associated appeal rights when his actions have contributed to such an absence. 296. Our conclusion on the third issue is that the FTT has no jurisdiction to take account of PAYE deductions in an appeal against a discovery assessment. We are satisfied that there has been a loss of tax as a matter of law (as well as in fact) which can be made the subject of discovery assessments. This disposes of the final ground of appeal. Further observations on the potential for injustice of the FTT not having jurisdiction 297. We have also considered further arguments as to the potential for injustice of the FTT not having jurisdiction to take account of PAYE deductions in an appeal against a discovery assessment. 298. Although it is not determinative of the outcome of this appeal, we have considered Mr Chacko’s argument about the “loss of tax” in this appeal. We are satisfied that not taking account of PAYE credits which might be ‘treated as deducted’ for the purposes of Regulation 188 does not invalidate HMRC’s discovery assessment. The Appellant argues that the amounts that the Bank should have deducted should be treated as deducted for the purposes of section 8(5) of the TMA and Regulation 188 and such that there has been no loss of tax for the purposes of section 29 TMA and the discovery assessments should be cancelled. We have rejected that argument for the reasons set out above. We have also considered whether this causes an unjust result for the Appellant. 299. We asked the following questions of the parties in an email dated 31 March 2021 prior to the UT’s decision in Hoey being released on 12 April 2021: ‘Irrespective of ….. Judge Morgan’s analysis in Lancashire , even if the Tribunal has jurisdiction and even if the Tribunal were to find that the Appellant delivered a P45 or P46 to the Bank, such that the bank was responsible for the initial failure to apply the correct code and make higher rate deductions under PAYE, is that the end of the matter? Is it arguable that section 29(1) and (4) do not simply require an analysis of whether the bank is responsible for a loss of tax but whether the Appellant is also responsible for a loss of tax? If the Tribunal were to find that the Bank were initially responsible for the mistake and loss of tax in applying the wrong code but the Appellant were later also responsible for the same, because he filed inaccurate or mistaken returns, where would that take matters? Assuming for the moment that the Tribunal were to find that the Bank were responsible for applying the wrong code and making insufficient deductions but following the Bank’s mistake, the Appellant had then filed inaccurate returns, and the condition of carelessness in section 29(4) were met, would this not mean that there had been income which had not been assessed for the purposes of section 29(1)(a) (or an insufficiency of tax under section 29(1)(b)) and that there was a loss of tax and that this had been brought about as a result of the Appellant’s carelessness, then would the conditions of section 29 not be satisfied? Ie. would any earlier responsibility of the Bank for the loss of tax become irrelevant to the section 29 analysis if the statutory conditions are fulfilled? Put another way, if the Appellant’s carelessness has brought about a loss of tax through his inaccurate returns, is it sufficient that his behaviour is a cause of the tax loss and even if the Bank’s actions were also a cause this becomes irrelevant for the purposes of section 29? Is it that so long as the Appellant’s inaccurate returns are a cause of the tax loss (and assuming for a moment that he was careless) then they do not have to be the sole cause of the tax loss because section 29 does not require this? Further, on these factual assumptions, would it also be relevant if the Appellant’s behaviour was the more proximate cause of the tax loss than the Bank’s behaviour (because the Appellant’s behaviour came later and was the final cause of the tax loss)? 300. In his written submissions dated 7 May 2021 Mr Chacko argued that if the Appellant was not required to pay higher rate tax to HMRC under his self-assessment, because he had the PAYE credit (and was therefore treated as already having paid that amount when the s 59B calculation is carried out, whether or not the PAYE credit forms part of the self-assessment itself), then there was no “loss of tax” resulting from any errors or insufficiencies in his self-assessment: there could not be, because he had paid what he was required to pay. 301. He submits that the “loss of tax” was a deficiency in the Bank’s PAYE returns to HMRC, which should have been accounted for under PAYE Regulation 68 and HMRC could have demanded under PAYE Regulation 80. The Appellant’s carelessness, if established, did not cause that loss of tax in a relevant way: it may have contributed to HMRC failing to become aware of the loss of tax at an earlier stage, but it was not a loss of tax by reference to the Appellant’s self-assessment obligation. Put another way: the s 29 assessment cannot be correcting a “loss of tax” if, even if that assessment is upheld, HMRC would still “lose” the same tax because the Appellant is deemed (by virtue of the PAYE Credit) already to have paid it. 302. We reach no concluded view on this argument because it is no longer necessary in light of the UT’s decision in Hoey and our decision on jurisdiction. The logic of Mr Chacko’s argument is straightforward and attractive - there has been no tax loss which can be discovered if, contrary to our finding, Regulation 188 can apply to section 29 of the TMA and there is jurisdiction to take into account the PAYE deductions that the employer should have made but did not. However, it has been rejected in Hoey for reasons with which we agree. 303. However, we make the following observations as to why application of the UT’s interpretation in Hoey causes the Appellant no injustice in this case. 304. It would be a surprising interpretation of the provision if section 29 of the TMA did not empower HMRC to raise a discovery assessment and make good the loss of tax to the Crown in circumstances where: - income which ought to have been assessed to income tax has not been so assessed for the purposes of s.29(1)(a) TMA because the Appellant failed to declare in his tax returns any employment income, let alone the PAYE deductions and any tax payable; - the Appellant brought about this situation carelessly for the purposes of s.29(4) TMA; - there has been an actual tax loss to the Crown because the Bank failed to make the correct PAYE deductions but only applied the basic rate of income tax and neither the Appellant nor the Bank have assessed or repaid the balance. 305. To the extent that the Appellant argues that any loss of tax has not been brought about by him but rather by the Bank, we observe the following. As a matter of fact, the loss of tax was originally caused by the Bank but the continuing loss is substantially caused by the Appellant’s failure to assess and pay the balance of income tax due which had not been deducted under PAYE and of which he has the benefit. Therefore, our decision accords both with a strict and purposive interpretation of the legislation as suggested in Burton . As we have decided above, neither the ‘treated as deducted’ provisions of section 8(5) of the TMA nor Regulation 188 of the PAYE Regulations apply PAYE deductions that should have been made but were not made to reduce or extinguish a tax loss which is to be recovered in a discovery assessment raised under section 29 of the TMA. The application of this interpretation causes no injustice to the Appellant. 306. It is not in dispute that the Revenue has and continues to suffer an actual tax loss in respect of the Appellant’s earnings by the under deduction of PAYE which we have found to have been caused by the Bank. The continuing actual tax loss was caused by the Appellant’s failure to declare his employment income or any income on his tax returns and failure to make payment. Even if the sums which were under deducted was the initial cause of the tax loss, the Appellant’s actions in failing to make an accurate self-assessment superseded the Bank’s failings. He has subsequently and substantially caused a continuing loss of tax by failing to declare his income and the Bank’s PAYE deductions in his tax returns - by failing to make a proper self-assessment and paying the further sums of tax due. Therefore it is arguable that the Appellant’s actions are the supervening and most proximate cause of the actual tax loss because he should have made good the loss of tax after declaring the amounts chargeable and payable in his self-assessment returns pursuant to section 9(1)(a) and (b) of the TMA. 307. It is arguable that if a taxpayer acts carelessly and inaccurately and does not assess and pay the sums not deducted, including sums treated as deducted under the PAYE Regulations, then the tax loss is sustained and caused by the Appellant’s failure to make proper assessment and payment rather than the under deduction and he can no longer benefit from the PAYE credit that the employer should have deducted. It is arguable that the language of section 29 is directed to the loss of tax caused by an inaccurate assessment rather than the loss of tax caused by the original under deduction. 308. Therefore, it is further arguable that our interpretation of the terms of section 29(1) causes no injustice even where the Tribunal has no jurisdiction to consider PAYE deductions. The Appellant has failed to declare his income which ought to have been assessed to income tax. He has brought about this situation carelessly for the purpose of section 29(4) of the TMA. It is arguable that section 29(4) does not require the Appellant to have caused the tax loss himself - only that he caused the situation in 29(1) that income which ought to have been assessed has not been assessed to income tax. Thereafter, the Officer has made discovery assessments to make good the loss of tax to the Crown. It is not in dispute that as a matter of fact there was an actual loss to the Crown and we have found that as a matter of law there is a tax loss because PAYE deductions cannot be treated as deducted. Even if section 29 also requires the loss of tax to have been brought about carelessly by the taxpayer, the Appellant has substantially caused the loss of tax by failing to make an assessment of his employment income or his income tax liability for the reasons set out above. 309. However, it is not necessary to come any conclusion on any of these arguments as our decision on jurisdiction disposes of the third issue. There has been a tax loss as a matter of fact and as a matter of law because the PAYE deductions that should have been made but were not cannot be taken into account on this appeal. The Appellant carelessly failed to declare his employment income which ought to have been assessed to income tax and he caused the loss of tax in fact and law because he failed to assess and pay the income tax which was due on his income (excluding any PAYE deductions). 310. Therefore, for all these reasons HMRC’s discovery assessments were validly issued and the Tribunal has no jurisdiction on an appeal to consider whether the Appellant might be entitled to any credit for PAYE deductions that the Bank should have made. CONCLUSION 311. The first issue: We are satisfied that the discovery assessments were validly raised. Income which ought to have been assessed to income tax was not self-assessed in the Appellant’s two returns. There was an actual tax loss which continues to this day. This situation was brought about by the Appellant. He carelessly filed his tax returns for the two years in question (2010 and 2011) by failing to declare any employment or employment income within them. The correct amount of income tax has not been paid, which loss HMRC is entitled to make good by raising discovery assessments. Sections 29(1) & (4) TMA are satisfied and HMRC was entitled to make the discovery assessments in 2016 relying on the extended time limits under section 36(1) TMA. The discovery assessments were raised within a reasonable time of HMRC making the discovery in 2016 (even though the concept of staleness is no longer known to law). 312. The second issue: We find on the balance of probabilities that the Appellant did deliver a P45 to the Bank through his PA in or around February 2010 shortly after starting his employment with it in January 2010. In the alternative he delivered a properly completed P46 at around the same time as joining the Bank. Further and in any event, the Bank had sufficient information available properly to complete a P46 on his behalf at that time. The Bank incorrectly applied the BR code and under deducted income tax through PAYE. 313. The third issue: For the reasons explained above, we are bound by the Upper Tribunal’s decision in Hoey . This authority requires us to find that we do not have jurisdiction in an appeal against a discovery assessment to give credit for tax that should be treated as deducted under the PAYE Regulations. We are satisfied that the statutory conditions for making valid discovery assessments under section 29 are fulfilled - there was a loss of tax because we should take no account of PAYE deductions which should have been made by the Bank. 314. Therefore, the appeal should be dismissed. 315. When the assessments were issued on 10 March 2016 the exact figures for the Appellant’s employment income and any employment benefits he received were not known so rounded figures were used. HMRC have recalculated the amount of tax due We accept HMRC’s invitation to vary the assessments to the following amounts: a. Year ending 5 April 2010 - £50,611.94 b. Year ending 5 April 2011 - £81,987.80. RIGHT TO APPLY FOR PERMISSION TO APPEAL 316. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. JUDGE RUPERT JONES Release date: 28 June 2021 [1] https://www.gov.uk/self-assessment-tax-returns