Daniel Witton v The Commissioners for HMRC [2026] UKFTT 267 (TC)

[2026] UKFTT 00267 (TC)Case No TC09793
FIRST-TIER TRIBUNAL
TAX CHAMBER
Hearing Heard on: 2-3 October 2025Date Judgment date: 19 February 2026
Taylor House, London
Appeal reference: TC/2021/00041
Discovery assessments – deliberate behaviour – self‑assessment –Regulation 72(5) Condition B Income Tax (PAYE) Regulations 2003– wilful failure to deduct tax – knowledge of employee – burden of proof – appeals allowed
Before
TRIBUNAL JUDGE GERAINT WILLIAMSTRIBUNAL MEMBER DUNCAN MCBRIDE
Between
DANIEL WITTONAppellantTHE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMSRespondentMr Michael Avient of counsel, instructed by Simmons Gainsford LLP for AppellantMr Dave Lewis, litigator of HM Revenue and Customs’ Solicitor’s Office for RespondentsDECISION

Introduction

[1]The Appellant, Mr Daniel Witton, appeals against the following decisions and assessments by the Respondents (“HMRC”):(1) Discovery assessments for the tax years 2006/07, 2007/08, 2008/09, 2009/10 and 2010/11 made in accordance with s29 of the Taxes Management Act 1970 (“TMA”);(2) Section 8 Decision in respect of National Insurance Contributions (NICs) for the years 2008/09, 2009/10, and 2010/11 made in accordance with S8(1)(c) Social Security Contributions (Transfer of Functions) Act 1999;(3) Penalty Determinations for years 2006/07 and 2007/08 made in accordance with s95(1) TMA;(4) HMRCs decision to issue direction notices requiring the transfer of PAYE tax and NICs liabilities for the years 2008/09, 2009/10 and 2010/11 under Regulation 72(5) Condition B Income Tax (PAYE) Regulations 2003 and Regulation 86, s8 of the Social Security (Contributions) Regulations 2001 (collectively “the Regulations”). The direction notices transfer the liabilities from Direct Sharedeal Ltd (“DSL”) to the Appellant.[2]The details of the decisions and assessments are as follows: Tax year Decision Amount Date of issue Date of appeal 2006/07 Assessment £23,882.64 3/2/2020 2/3/2020 2007/08 Assessment £33,985.75 3/2/2020 2/3/2020 2006/07 Penalty determination £19,106.00 3/2/2020 2/3/2020 2007/08 Penalty determination £27,188.00 3/2/2020 2/3/2020 2008/09 Assessment £68,812.80 15/9/2020 15/10/2020 2009/10 Assessment £182,091.20 15/9/2020 15/10/2020 2010/11 Assessment £50,726.40 15/9/2020 15/10/2020 2008/09 S.8 decision £5,360.82 24/9/2020 15/10/2020 2009/10 S.8 decision £8,562.88 24/9/2020 15/10/2020 2010/11 S.8 decision £5,214.01 24/9/2020 15/10/2020 Total £424,930.50[3]A statutory review was carried out by HMRC on 7 December 2020. The review conclusion varied the amounts as follows: Tax year Decision Amount 2006/07 Assessment £27,486.54 2007/08 Assessment £42,243.56 2006/07 Penalty determination £13,743.00 2007/08 Penalty determination £21,121.00 2008/09 Assessment £68,812.80 2009/10 Assessment £182,091.20 2010/11 Assessment £50,726.40 2008/09 S.8 decision £5,360.82 2009/10 S.8 decision £8,562.88 2010/11 S.8 decision £5,214.01 Total £425,362.21

Issues

[4]The issues to be decided are:(1) Whether HMRC have established deliberate behaviour on behalf of the Appellant and the discovery assessments are valid and correct.(2) Whether the Appellant had knowledge that DSL in respect of years 2008/09, 2009/10 and 2010/11 wilfully failed to deduct the amount of PAYE tax and NICs from the amounts he received from DSL during these years.

Representation

[5]On the day before the hearing, the Appellant re‑instructed his former representatives, Simmons Gainsford (“SG”), who urgently instructed counsel. The Appellant’s skeleton argument was provided on the morning of the hearing, after the hearing had commenced. The Tribunal adjourned briefly to allow both the Tribunal and HMRC to consider it. No issue of procedural unfairness arose. Relevant legislation 6. Section 29(4): the under assessment was “brought about carelessly or deliberately by the taxpayer or a person acting on his behalf”. 7. Section 36(1): “An assessment on a person in a case involving a loss of income tax … brought about carelessly by the person may be made at any time not more than 6 years after the end of the year of assessment to which it relates …” 8. Section 36(1A): “An assessment on a person in a case involving a loss of income tax … brought about deliberately… may be made any time not more than 20 years… after the end of the year of assessment to which it relates …” 9. Section 95 TMA [for 2007/08 and earlier tax years]: A person is liable to a penalty where the person fraudulently or negligently delivers an incorrect return. The penalty being the difference between the amount of income tax payable for the year of assessment and the amount payable if the return had submitted had been correct. Social Security Contributions (Transfer of Functions, etc.) Act 1999 s. 8 Decisions by officers of Board. (1). Subject to the provisions of this Part, it shall be for an officer of the Board— 12. … (c). to decide whether a person is or was liable to pay contributions of any particular class and, if so, the amount that he is or was liable to pay, Income Tax (PAYE) Regulations 2003: 14. Section 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 19. “the deductible amount” is the amount which an employer was liable to deduct from relevant payments made to an employee in a tax period; 20. “the amount actually deducted” is the amount actually deducted by the employer from relevant payments made to that employee during that tax period; 21. “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. 33. 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.

Relevant legislation

[6]Regulation 80 provides that HMRC can recover tax not deducted by the employer from the employer in certain circumstances by making a direction.

Background and undisputed facts

[7]All of the Appellant’s roles prior to joining DSL were as a self-employed financial product salesman and required the Appellant to generate his own sales and customer base to sell his employers’ financial products to investors included foreign exchange, futures, options, commodities, leveraged instruments and Contracts for Difference (“CFD”).[8]Whilst working at Tradition, a broker in London, an associate who had previously worked at DSL, introduced him to DSL. DSL had the relevant license and regulatory approvals covering the type of products that the Appellant was looking to sell. DSL’s Glasgow office’s (“Glasgow”) execution only business had plateaued and DSL were keen to expand its services by establishing a London office. Establishing a London office required the Appellant to provide funding to DSL and, in or around October/November 2005, the Appellant approached his father, RW, who agreed to invest £500k into DSL to improve its liquidity and provide initial funding for London premises, IT equipment, telephones etc. The Appellant’s brother, Tom Witton, joined the new DSL London sales team.[9]The London office operated under Glasgow’s regulatory approval and, as such, was able to contact DSL’s existing customers without breaching any regulatory rules. The Appellant’s role was purely sales oriented: to promote DSL’s new CFD advisory share trading service.[10]Following the establishment of the London office, Glasgow continued to operate its execution only share dealing. There were no management representatives or staff from Glasgow based in London. The Appellant was in contact with Glasgow several times a week to provide sales updates.[11]All DSL customers, new and existing, were required to complete the relevant paperwork to onboard for the CFD advisory share trading service. The paperwork was sent directly to Glasgow for processing and approval. At Glasgow there were approximately 25 staff including management, execution traders, administration and payroll. All aspects of regulatory and financial reporting along with trade execution, settlement of trades and payroll was controlled solely from Glasgow. All the financial matters pertaining to DSL were carried out in Glasgow.[12]When the onboarding process had been completed and the client had deposited funds with Glasgow, the client would be introduced to one of two traders in the London office. The Appellant, although qualified to do so, had no involvement in the trading aspect of the London office. The director in charge of trading was based in Glasgow and he would liaise with the two London traders.[13]If the Appellant had any queries about the status of a new account, he would speak to the compliance officer who was based in Glasgow. All client monies for CFD trading were held either at City Index or Saxo Bank, those two accounts could only be accessed by the bank office team in Glasgow. The London office did not have any access to the two bank accounts. The London office was able to view the client accounts but did not have the ability to access information about any trading commission due to the London office. Staff in the London office were not on DSL’s banking mandate. All financial control over DSL was exercised from Glasgow with the London office only being able to view limited necessary operational aspects. DW did not have access to DSL’s bank accounts until the resignation of Tom Bell, a director, in August 2010. In the year preceding the collapse of DSL, Tom Bell, as the only active director had effectively been running DSL.

Income Tax (PAYE) Regulations 2003:

[14]The Appellant’s role at DSL was solely sales orientated and he, along with Gary Docherty, acted as the focal point for updating and communications with Glasgow.[15]During the Appellant’s first two years at DSL he was self-employed and received payments of commission generated from the trades carried out by clients that he introduced to DSL. There was no specific formula that was used to calculate his commission but it usually amounted to approximately 10% of the commission generated. It was common for various fees in the form of a desk charge to be deducted by DSL from the commission paid to the Appellant. The amount of the desk charge could vary dependent on costs charged by DSL; the Appellant had no control over the desk charge.[16]The operating expenses of the London office such as rent, business rates, lighting, utility services etc. were all handled and paid by Glasgow which charged the expenses on a proportionate basis based on the number of London staff. The Appellant did not have any oversight of the additional expenditure incurred in supporting the London office nor knowledge of whether the Glasgow share dealing business had been profitable or not. The desk charges and expenses charged were controlled by Glasgow and could have a significant impact on the commission received with no transparency as to how it had been calculated.[17]Glasgow provided an execution service only and only generated commission when a client decided to trade. This was in contrast to the London office which provided an advisory service which generated a more consistent revenue stream. This meant that the London office quickly became an important source of income for DSL. The Appellant was not involved in running DSL and was unable to properly verify his monthly commission payments. When a new client was onboarded, the Appellant’s commission was based upon the amount traded in the period and would be 10% of DSL’s gross commission from which the following deductions could be made:(i) ad hoc additional office and staff costs,(ii) advertising(iii) refunds to selected clients, etc. Not all of these deductions would be made each month and the level of deduction could also vary, such as when amounts were re-credited to clients.[18]The Appellant’s commission continued to increase during his initial 24 months at DSL as more clients were onboarded.[19]During the Appellant’s first two years working at DSL he retained the services of an accountant, David Dugdale trading as TAS Ltd, to keep his tax affairs in order. All his income from self-employment was paid into his NatWest bank account.[20]On 1 May 2008, the Appellant was appointed a director of DSL. The Appellant accepted that he was aware that he had been appointed a director and had signed the form submitted to Company House confirming his appointment.[21]On 25 March 2009, prior to HMRCs investigation, the Appellant submitted Self Assessment Tax Returns (“SATR”) for years 2006/07 and 2007/08 declaring the following income from self-employment as an investment consultant: Tax years Turnover COGS Expenses Net Profit 2006/07 £57,116 £15,585 £19,473 £22,058 2007/08 £54,439 £13,865 £22,702 £17,872[22]The Company accounts confirm that commission for services was paid to the Appellant in the following amounts: Year ended 31.3.09 £240,542 Year ended 31.3.10 £461,298[23]No such disclosure was made in the accounts for the earlier years covered by this appeal.[24]The Appellant had not submitted tax returns to HMRC in respect of the years 2008/09, 2009/10 and 2010/11.[25]On 6 May 2010, the “Flash Crash” (a type of stock market crash) occurred which lasted for approximately 36 minutes. Stock indices such as S&P 500, Dow Jones Industrial Average and Nasdaq Composite Index plummeted in value and although they partially rebounded in value over $1 trillion in market value was erased. DSL’s discretionary trading account operated on a six times leveraged basis for both long and short positions. The fall in market values was severe enough to create losses in excess of 80% to DSL client accounts resulting in DSL suspending trading. Following the Flash Crash, clients complained to the Financial Ombudsman who decided that all complaints should be dealt with on an individual basis and all clients notified of the complaints. This effectively destroyed DSL’s reputation and client base from which it was impossible to recover.[26]In May 2010, there were four directors of DSL but Tom Bell was the only active director. For approximately a year before its demise, DSL had been effectively run by Tom Bell in Glasgow. Tom Bell resigned as a director on 1 August 2010.[27]The Appellant brought back Tom Bell as a consultant to assist him with putting DSL into administration. Finn & Co were appointed in October/November 2010 as liquidators. At no point during the liquidation was he required to attend Glasgow to meet with the liquidators, Tom Bell liaised with and worked with the liquidators.[28]Following the failure of DSL, the Appellant had to sell his family home and was unemployed for several years. During that period he and his family were supported by his parents. In 2012, following a petition by Secretary of State for Business Innovation and Skills to disqualify him, he was banned from holding any directorships for seven years and RW banned for three years. The Edinburgh Court of Session found that the Appellant and RW had demonstrated a cavalier and reckless attitude towards their obligations as imposed by the FSA.[29]On 20 April 2017, Officer Daniel O’Prey issued a letter to the Appellant under Code Of Practice 9 (“COP9”), Contractual Disclosure Facility (“CDF”) process as it was suspected that the Appellant had carried out tax fraud. The letter offered the Appellant the opportunity to make a full disclosure on the understanding that HMRC would not start a criminal investigation with a view to prosecution in respect of any deliberate conduct disclosed.[30]The investigation was initially conducted by Officers O’Prey and Peoples.[31]On 17 July 2017 a COP9 disclosure signed by DW was sent to HMRC by the Appellant’s representative, SG. SG stated that the Appellant wished to accept HMRC’s offer, deliberate behaviour was denied in respect of any tax errors. The relevant parts of the disclosure are as follows:(1) “I started working for [DSL] in 2006 on a self-employed basis. In 2009 I was advised that I had been appointed a director from 1 May 2008, which was a surprise to me.”(2) “[DSL] eventually collapsed and liquidators were appointed on 12 April 2011.”(3) “Undeclared income may have arisen from 1 May 2008 onwards in relation to DSL, although I was under the impression that as a Director, my salary was tax deducted at source.”(4) “I do not hold sufficient records to accurately quantify my liability. Whilst working as a consultant for [DSL] I earned approximately £5,000 per month. Tax returns were filed at the time by my accountant and I do not hold copies. During the period I was appointed a director at [DSL]I was paid as an employee and believed that tax was deducted at source.”(5) “Due to the amount of time that has passed I have no records from my time at [DSL]. My accountant at the time passed away in May 2015 and I do not have access to the records.”(6) “I have contacted my former accountant’s widow but she no longer holds any records.”(7) “My role in DSL was to be responsible for developing DS Wealth’s product range and advisory and discretionary services. As the Head of Sales my key responsibilities included:• Sales training• Setting sales targets• Regular appraisals• Managing customer support• Reporting directly to the Managing Director”(8) “On 1 May 2008 I was appointed as Director of the Company, although this was only communicated to me some time later, perhaps in 2009. From this point I believed I was being paid through the payroll and hence had no further obligation to tax. Please note however that I hold no records to verify the position such as payslips/P60s/P11Ds. It is entirely possible that the company did not make all the necessary deductions from the payments I received.”(9) “I however was not involved in the day to day finance operations including those relating to payroll as those operations were carried out in Glasgow whilst I was based in London.”(10) “Throughout my time as a consultant at DSL I received a salary of approximately £5,000 per month. The last filed set of accounts to 31 March 2010 show me as having received £461,298 of commission in that period, although as explained above my understanding is that that tax was paid at source. I no longer have access to any records.”(11) “In the summer of 2009 I had invested approximately £120,000 into DSL. This money was raised as a loan to me (with optional equity which was not taken up) which I personally repaid with interest at £128,000 including interest. This £120,000 is still owed to me by DSL.”[32]On 15 August 2017, Officer O’Prey sent a letter to the Appellant stating that the disclosure signed by the Appellant denied deliberate behaviour and so was being treated as a rejection of the offer in his letter dated 20 April 2017 and he was now opening an investigation of the suspected fraud.[33]On 22 September 2017, Officer O’Prey sent a letter to SG confirming his concerns and suggested a meeting with the Appellant to progress matters.[34]On 15 November 2017 a meeting took place between the Appellant, his brother Thomas Witton (“TW”), Anthony Rose of SG and Officers Peoples and O’Prey.[35]On 30 November 2017, Officer Peoples sent an email to SG which attached a copy of her notes of the meeting held on 15 November 2017 and requested that a signed copy of the meeting notes be returned confirming agreement of the notes. Key business information and practices were discussed and signed notes by all attending parties were agreed and returned to HMRC on 28 March 2018. The agreed meeting notes records that Officer O’Prey took the lead and asked all questions bar two questions from Officer Peoples. The relevant details of that meeting are as follows:(1) DW confirmed that he did not admit to tax fraud.(2) DW joined DSL in 2006, a company in which his father had invested £2.1m [the correct amount is £700,000].(3) DSL operations were split between Glasgow and London. Payroll was dealt with entirely in Glasgow. DW was based in London.(4) DW provided his services to the company as a self-employed consultant until 2008 and then became a Director, running the London Office.(5) DW stated that he had not realized the full obligations of being a Director.(6) DW admitted that the Corporate Governance of DSL was not particularly robust.(7) DW gained an understanding of employment and self-employment tax rules from his Father’s former accountant.(8) DW earned commission from sourcing new customers and invoiced the company monthly for his share of commission and expenses incurred.(9) DW received bank transfer payments from DSL for the commission earned. This practice was the same for his employment and self-employed periods. Commission earned was approximately £5k monthly but some months were different.(10) DW believed all the other Directors were on the company payroll so he had assumed he was too.(11) In response to DW’s answer at point (10) Officer O’Prey pointed out that the amount received should have been less than the amount invoiced if the Appellant had been on the payroll and deductions were being made. DW commented that he thought that made sense but that the amount he was paid varied greatly month on month and he did not keep track.(12) DW could not provide any business records for his time at DSL his accountant, David Dugdale, had passed away and his widow did not have access to any of Mr Dugdale’s records. He was not aware of which accountant may have taken over Mr Dugdale’s business after his death.(13) All records including bank statements and invoices raised to DSL were given to the accountant to prepare tax returns. The Appellant did not receive payslips. A copy of DW’s P60 for 2016/17 was provided to HMRC on 28 March 2018.(14) DW was disqualified as a Director for seven years after DSL ceased trading in May 2011. DW was one of three Directors at that point and was made managing director to oversee the winding down of the company.(15) DW did not work for three years after DSL ceased trading; his father supported him financially.[36]On 14 February 2018, Officer Peoples sent a letter to SG requesting information and enclosed a mandate form for the Appellant to complete authorising HMRC to obtain information from third parties.[37]At some point after 14 February 2018, Officer O’Prey stopped working on the investigation. The mandate form authorised Officer Peoples and O’Prey to obtain information from third parties but no further reference is made to Officer O’Prey in correspondence or documents. The investigation was then conducted solely by Officer Peoples until her retirement on 30 April 2020.[38]On 28 March 2018, SG provided the information requested by HMRC together with a signed copy of the notes of meeting held on 15 November 2017 confirming their agreement to the notes. Enclosed was a mandate form dated 22 March 2018 and signed by the Appellant, the mandate authorised Officer Peoples and O’Prey to obtain information from third parties.[39]On 19 April 2018, Officer Peoples sent a letter to the Appellant’s bank, National Westminster Bank plc (“NatWest”), to request copies of bank statements covering the period 1 January 2006 to 5 April 2012.[40]NatWest provided HMRC with bank statements for an account in the Appellant’s sole name and bank statements for an account in the joint names of the Appellant and his wife.[41]On 21 May 2018, Officer Peoples sent a letter to the appointed liquidators of DSL, Finn Associates, requesting DSL’s books and records together with any evidence of payments made by DSL to the Appellant and copies of invoices submitted by the Appellant to DSL. In response to the request, HMRC received Royal Bank of Scotland plc bank statements for DSL.[42]An email reply from Finn Associates dated 2 July 2018 stated:
“We have spent considerable time investigating this company and our findings do not make happy reading. Before going into administration the company went through a wholesale event of removing, corrupting or destroying records and much of our work has been of reconstruction from a combination of bank statement, a paper archive of over 500,000 documents, conversations with former staff and directors and reports from third parties.”
[43]On 16 November 2018, Officer McGuigan sent a letter to SG confirming that she was reviewing the bank statements to ascertain the amounts received by the Appellant from DSL and that to date and on a “without prejudice” basis, she had identified payments totalling £228,024 during 2009/10 and £119,742 during 2010/11 paid to the Appellant. She indicated that the payment amounts were likely to increase following the conclusion of her review of the bank statements.[44]On 13 March 2019, SG advised Officer Peoples that they were no longer acting for the Appellant.[45]On 15 May 2019, HMRC sent a letter to the Appellant enclosing a blank statement of assets and liabilities for completion and return.[46]On 11 November 2019, Officer Peoples sent a letter to the Appellant stating that no PAYE tax or NICs had been deducted from payments he received from DSL during the years 2008/09, 2009/10 and 2010/11 when he was a director of DSL. The letter stated that HMRC proposed to recover the tax and primary Class 1 NIC from the Appellant by virtue of Regulation 72(5) Income Tax (PAYE) Regulations (Condition B) and Regulation 86 Social Security (Contributions) Regulations 2001. Calculations of the PAYE tax/NICs arising were enclosed and DW was invited to comment or provide further information by 7 December 2019. The letter also confirmed that the two earlier years, 2006/07 and 2007/08, were being dealt with separately.[47]On 12 December 2019, SG were reappointed to act for the Appellant.[48]On 16 January 2020, Officer Peoples sent spreadsheets to SG. The spreadsheets were said to contain information taken from the Appellant’s NatWest bank statements that showed all payments received from DSL and covered the period 5 April 2007 to 5 April 2011.[49]On 3 February 2020, discovery assessments for 2006/07 and 2007/08 were issued to the Appellant based on the payments made by DSL into the Appellant’s NatWest bank account. Penalty assessments were simultaneously issued based on underpaid tax and HMRCs view of the behaviour underpinning the inaccurate tax returns and consideration of reductions to the maximum penalty chargeable, with reference to standard criteria.[50]The assessments increased the turnover to the amounts paid from DSL’s bank account to the Appellant; the cost of sales and expenses were left as declared within his returns resulting in an increase in turnover and net profit as the following: Year Turnover COGS Expenses Net profit 2006/07 £129,342 £15,585 £19,473 £94,284 2007/08 £164,213 £13,865 £22,702 £127,646[51]Officer Peoples stated that DSL’s bank accounts indicated that RW had understated his turnover within his returns by £72,226 for year 2006/07 and £109,774 for year 2007/08.[52]On 2 March 2020, SG submitted to HMRC an appeal against the assessments and penalty determinations for the years 2006/07 and 2007/08. The grounds of appeal were:(1) The assessments were time-barred, as HMRC had not demonstrated that the inaccuracies were brought about deliberately.(2) Whilst the 2006/07 was broadly in line with the income of £5,000 per month disclosed in the COP9 disclosure, no evidence had been produced to substantiate the amount assessed for 2007/08. HMRC had provided a spreadsheet analysis of the appellant’s bank statements for the years 2006/07 to 2010/11, the spreadsheet appeared to have no “linkage” to the assessments.(3) The discoveries had become “stale” by the time the assessments were made.[53]Ground (3) was not pursued at the hearing.[54]On 4 August 2020:(a) A formal direction was made, by an Authorised Officer of HMRC, under Regulation 72(5) Condition B of the Income Tax (Pay as You Earn) Regulations 2003, that the Company was not liable to pay the excess amounts which should have been, but were not, deducted from relevant payments to the Appellant in the years 2008/09, 2009/10 and 2010/11.(b) A formal direction was made by an Authorised Officer, under Section 8 (1)(c) of the Social Security Contributions (Transfer of Functions) Act 1999 that the Appellant was liable to pay primary Class 1 NIC for the years 2008/09, 2009/10 and 2010/11.[55]On 5 August 2020, Officer McGuigan (who had assumed responsibility for the case on or around April/May 2020 following Officers Peoples’s retirement on 30 April 2020) sent a letter to the Appellant explaining that she had identified some inaccuracies in Officer Peoples’s calculations. She confirmed that it was her view that the decisions for 2006/07 and 2007/08 should be amended to charge tax on profits of £94,284 (2006/07) and £127,646 (2007/08). Officer McGuigan then addressed the Appellant’s Grounds of Appeal and, having rejected the Grounds of Appeal, offered a review of her decision. A copy of the letter was sent to SG with a covering letter confirming that PAYE and NIC directions had now been received for the later years 2008/09, 2009/10 and 2010/11 and that she would issues assessments for those years on her return from annual leave.[56]On 3 September 2020, SG requested a statutory review of the matter.[57]On 21 September 2020, HMRC issued a notice of direction under Regulation 72(5) in respect of the years 2008/09, 2009/10 and 2010/11. Notices of discovery assessments were issued on the same date, charging tax on employment income of £195,467 (2008/09), £480,403 (2009/10) and £145,516 (2010/11).[58]On 24 September 2020, Officer McGuigan issued a decision under Section 8(1)(c) Social Security Contributions (Transfer of Functions) Act 1999 in respect of the same three years.[59]On 6 October 2020, Officer McGuigan sent an email to SG confirming that no penalties would be charged for the years 2008/09, 2009/10 and 2010/1.[60]On 15 October 2020, SG appealed against all of the HMRC decisions and outlined in paragraphs 57 and 58 and requested that they be included in the independent review.[61]On 20 October 2020, Officer McGuigan sent a letter to SG confirming that her view of the matter remained unchanged and the review request had been sent to the relevant HMRC team.[62]On 7 December 2020, Officer Agg sent a letter to the Appellant setting out her review of the decision (an extension of the review period to 15 January 2021 had been previously agreed). The review concluded that HMRCs decisions relating to 2008/09, 2009/10 and 2010/11 should remain unchanged, but the decisions relating to earlier years should be varied to the amounts shown within the table at paragraph 3 above.[63]On 5 January 2021, SG submitted an appeal against the Assessments, Decision and Determinations for all years to the Tribunal[64]On 16 April 2021, HMRC filed and served its Statement of Case.[65]Proceedings were stayed to explore ADR and later resumed; the Tribunal issued directions on 23 February 2022.[66]On 8 June 2022, HMRC served witness statements of Officers Rae and McGuigan and indicated they would seek to admit further documents including an email chain with the liquidators and a director‑disqualification article.[67]On 9 June 2022 HMRC applied to admit those additional documents; on 20 June 2022 the Tribunal indicated it would allow the application absent timely objection.[68]On 1 August 2022, DW applied to bar HMRC from the proceedings and on 2 August 2022 objected to the admission of the further documents and sought permission to object late.[69]On 8 August 2022, the Tribunal directed HMRC to respond. Responses and further representations followed in September 2022; a joint consent order application under Rule 15 Tribunal Rules was filed on 6 October 2022.[70]On 16 November 2022, HMRC applied to admit a supplementary witness statement (Officer McGuigan) and additional documents out of time.[71]On 9 January 2023, the Appellant opposed that application and sought costs.[72]On 17 January 2023, the Tribunal issued further directions and case‑management proposals were exchanged on 30–31 January 2023.[73]The Tribunal issued preliminary case‑management directions on 30 May 2023.[74]The Tribunal listed a hearing on 12 September 2023; subsequently, on 15 November 2023, the Tribunal refused the Appellant’s application to bar HMRC, allowed HMRC’s application to admit additional evidence and awarded costs to the Appellant on that application.[75]The Appellant sought permission to appeal to the Upper Tribunal on 9 January 2024; the Tribunal issued procedural decisions and directions on 22 February 2024 and 10 April 2024; on 2 May 2024 the Appellant sought further procedural relief in relation to the release and date of a revised decision; on 8 May 2024 he applied to the Upper Tribunal for an extension of time, which the Upper Tribunal granted on 15 May 2024; the Tribunal issued further procedural and review decisions on 22 May 2024.[76]On 1 October 2024, the Tribunal issued directions to progress the appeals to hearing.

evidence

[77]The Tribunal was provided with extensive documentary evidence, including a main hearing bundle, supplementary bundles and authorities bundles. Oral evidence was given by the Appellant, David Stephen and Officer Rae.[78]The witness evidence was as follows:(1) Witness statement of the Appellant dated 8 June 2022 with two exhibits.(2) Witness statement of Ronald Witten (“RW”), the Appellant’s father, dated 8 June 2022 with two exhibits.(3) Witness statement of David Stephen (“DS”), former Head of Compliance at DSL, undated without exhibits.(4) Witness statement of Officer Joanne McGuigan (“Officer McGuigan”) without exhibits dated 7 June 2022 and Supplementary Witness Statement dated 13 December 2022 with three exhibits.(5) Witness statement of Officer Lisa Rae (“Officer Rae”) without exhibits dated 27 April 2022.[79]The Appellant, DS and Officer Rae gave evidence and were cross-examined.

Daniel Witton’s evidence

[80]The Appellant’s evidence addressed the tax years in which he was self-employed, his reliance upon his accountant and his lack of understanding of tax and how taxable profits were calculated. He had relied entirely on his accountant, to whom he provided all bank statements and business records, and that he did not himself understand how taxable profits were calculated.[81]He explained that many of the payments into his account represented receipts that were then immediately paid out to other members of his sales team, and that the bank statements therefore did not reflect solely his own income or profit. His evidence was that after becoming a director he believed the payments he received were made net of tax and that PAYE was being operated and therefore saw no need to file further tax returns for those years. He described himself as inexperienced in tax and accounting matters stating that he had no involvement in payroll, no access to the DSL’s banking systems and relied on others within DSL for administrative and financial compliance. He had signed the DSL accounts on 21 December 2010 for the period ended 31 March 2010 on the assurance of the accountants that they were correct, he had no reason to doubt that tax had been deducted, and that at all times he tried to act properly and without any intention to bring about a loss of tax.[82]We have largely accepted the Appellant’s evidence save where otherwise stated.

Ronald Witton’s evidence

[83]RW is resident in Vietnam and the Tribunal endorsed a consent order on 13 October 2022 that RW provide written responses to HMRC’s written questions. Written questions dated 9 November 2022 and additional written questions dated 20 December 200 were answered by RW on 7 December 2022 and 9 January 2023. RW’s evidence was that he had no involvement in the day‑to‑day running of DSL, any role he played was limited. He explained that although he was listed as a director, he was not present in the UK for significant periods, had no operational responsibilities, and did not participate in the company’s financial administration, payroll, or compliance functions. He confirmed that he did not supervise or direct his son in relation to tax matters, business management, or remuneration. He had provided funds to DSL by way of a capital contribution loan, there was no written agreement. He further stated that he had no knowledge of the company’s PAYE arrangements, the manner in which payments were made to directors or employees, or whether tax was correctly deducted. His evidence was that he was not in a position to influence or oversee DSL’s business activities and that any matters concerning PAYE, remuneration or company management were handled entirely by others.[84]RW’s evidence was not referred to by either party in their skeleton arguments nor in oral submissions. We did not find his written evidence to be of any assistance in determining the issues before us. Accordingly, we have not referred to his evidence in our findings of fact and discussion.

David Stephen’s evidence

[85]DS was employed as Head of Compliance at DSL in the Glasgow office between April and November 2010, after his employment ended he later returned to assist the liquidators in a consultancy capacity. He explained that during his period of employment his line management was through the Managing Director, Tom Bell, and after Mr Bell’s resignation he reported to the Appellant and Mr Tom Wood, though he did not have any involvement with PAYE, payroll, banking access or the company’s financial administration. He said he understood that DSL’s directors, including the Appellant, were paid £10,000 per month according to the company’s governance records, but he had no knowledge of how payments were processed and no access to bank statements or payroll systems. DS stated that the terms of his own consultancy engagement were put in place after his employment ended, were based on a standard DSL consultancy contract and were agreed at a rate of approximately £60,000 per year pro rata, with the arrangements handled formally rather than informally. He also confirmed that Gordon Perry, a non-executive director, played a role in assisting with the winding down of the company and that, in his experience, major financial and compliance functions were not handled from the London office where the Appellant was based.[86]We found DS to be a credible witness and accepted his evidence.

Officer McGuigan’s evidence

[87]Office Peoples commenced an investigation into alleged tax fraud by the Appellant under Code of Practice (“COP9”), Contractual Disclosure Facility (“CDF”) process on 20 April 2017. Officer Peoples retired on 30 April 2020 and has sadly since died. Officer McGuigan took over responsibility of the Appellant’s case in or around May 2020.[88]The date that Officer McGuigan took over the case is unclear as her witness statements refers to the date as both 1 May and 20 May 2020. Office Rae’s witness statement states that she assigned the Appellant’s case in April 2020. Officer McGuigan’s first witness statement covered her understanding of the investigation and steps undertaken by Officer Peoples; her view of the matter; the basis on which the discovery assessments and decisions were made; the rationale for seeking and issuing the Regulation 72(5) Condition B direction and the s8 NICs decisions for 2008/09 to 2010/11. Her second witness statement explained the internal checks carried out by Officer Peoples to establish that DSL did not deduct PAYE tax and Class 1 NICs from the earnings paid to the Appellant as a director for the tax years 2008 to 2011.

Officer McGuigan’s non-attendance

[89]On the first day of the hearing it was confirmed by Mr Lewis that Officer McGuigan, who is retired, would not be attending the hearing as she had caring responsibilities for a disabled son. The Tribunal and Mr Avient understood Mr Lewis to mean that former Officer McGuigan’s decision to not attend the hearing had only recently been notified to HMRC.[90]On day two of the hearing, Mr Lewis confirmed, in response to a question from Judge Williams, that HMRC had been notified in roughly April 2025 that Officer McGuigan would not be attending the hearing as any payment that she would receive for attending the hearing (former HMRC Officers are customarily paid for attending the hearing at the hourly rate they were paid prior to leaving HMRC) would take her over the earnings limit for receipt of PIP (“Personal Independence Payment”). We understood that the reference to PIP should have referred to carer’s allowance that Officer McGuigan received, carer’s allowance is subject to a weekly earning’s ceiling which would be exceeded if Officer McGuigan were paid for attending the hearing.[91]It is clearly unacceptable that neither the Tribunal nor Appellant (who was unrepresented at the time) were notified of that decision in April 2025. Such behaviour is to be deplored in the strongest terms, is unacceptable and contrary to overriding objective and the parties’ obligation to co-operate with the Tribunal. It was of further concern that Mr Lewis did not appear unduly troubled by this omission. If the Tribunal and the Appellant had been notified the Tribunal may have exercised its powers under Rule 16 of the Tribunal Rules on application by any party or of its own initiative compelling former Officer McGuigan to attend the hearing. The consequences of former Officer McGuigan’s failure to attend and the weight to be attached to her evidence are considered below.

Officer Rae’s evidence

[92]Officer Rae stated that she was a manager within HMRC’s Fraud Investigation Service (“FIS”) at the relevant time and that her role in the case primarily involved reviewing the work undertaken by case officers that she managed, attending ADR discussions, and providing managerial oversight of the investigation. She was Officer People’s manager at the relevant time. She had discussed aspects of the case with Officer Peoples and had reallocated the case to Officer McGuigan in April 2020 following the retirement of Officer Peoples. She was Officer McGuigan’s manager at the time the case was reallocated to her. During cross-examination she confirmed that the recommendation to investigate DW by way of COP9 CDF procedure was the joint recommendation of Officer McGuigan and Officer O’Prey. Officer Rae accepted that she had provided an incomplete statement and that she would need to “go back and check”. She did not accept that her witness statement could not be relied upon but accepted that it was not 100% accurate. She accepted that she had not referred to any documents in her statement nor exhibited any documents and no documents had been exhibited in support of the discovery assessments issued.

Burden of proof

[93]HMRC’s skeleton set out where the burden of proof lay in the appeals. Mr Avient accepted that HMRC had accurately set out the burden of proof. It is helpful to set that out in full before proceeding to consider Mr Avient’s submissions regarding the weight to be attached to Officer McGuigan’s evidence.[94]HMRC stated:
“Discovery Assessments all years and penalty Determinations years 2006/07 and 2007/08 87. The burden of proof initially rests with the [HRMC] to show that they have correctly raised discovery assessments and that a penalty is chargeable. 88. The burden of proof shifts to [DW] to show that they have been overcharged by the assessments s and that a penalty is not chargeable. 89. The standard of proof is the civil standard on the balance of probabilities. PAYE Tax/NICs years 2008/09, 2009/10 and 2010/11 90. The burden of proof is upon [HMRC] to demonstrate the wilful failure of [DSL] to deduct, and in the case of NICs, pay the tax and primary Class 1 contributions relevant to the determinations raised under Regulation 72(5) Condition B of the Income Tax (PAYE) Regulations 2003 and Section 8(1)(C) Social Security Contributions (Transfer of Functions) Act 1999, respectively. 91. The burden of proof is also with [HMRC] to demonstrate that [DW] knew of the wilful failure to deduct and pay to [HMRC] both income tax and NICs, respectively. 92. Once that is established, the burden of proof shifts to [DW] to displace, if necessary, the quantum of [HMRC’s] determinations. 93. The standard of proof is the civil standard on the balance of probabilities.”
PAYE Tax/NICs years 2008/09, 2009/10 and 2010/11

Weight to be attached to Officer McGuigan’s witness statements

[95]Mr Avient submitted that no weight should be attached to the witness evidence of Officer McGuigan save for the bare existence and face-value contents of any documents exhibited by her that are not disputed. Her evidence went to the core issues in dispute, yet she did not attend the hearing and HMRC offered no adequate explanation for her failure to do so. Mr Avient emphasised that HMRC had not sought a direction to compel her attendance nor had they informed the Appellant in sufficient time to enable such an application to be made. This placed the Tribunal in the position identified in Reddrock Ltd v HMRC [2014] UKUT 61 (TCC), where the Upper Tribunal held at [15] that evidence central to the issues but unsupported by the witness’s attendance should be given little, if any, weight.[96]Mr Avient further submitted that the deficiencies in Officer McGuigan’s evidence were not limited to her absence: her witness statements did not assert that she had personal knowledge of the matters to which she referred and she did not identify the sources of her assertions. In her absence, it could not be proved that the three documents exhibited to her second witness statement were the documents that HMRC had relied upon at the relevant time nor did they constitute primary evidence on which any inference could properly be drawn. The provenance of those documents was not established and that their contents could not support the inferences HMRC sought to derive from them. In particular, the exhibits were either unrelated to PAYE compliance, incomplete or incapable of demonstrating what HMRC asserted.[97]Mr Avient also relied on the total absence of evidence from the authorising officer, Ms Eileen Kerr, who was the only person capable of speaking directly to the statutory conditions that must have been satisfied at the relevant time. He submitted that an adverse inference should be drawn from HMRC’s failure to call her. In his submission, HMRC’s attempt to rely upon the evidence of Officer Rae only strengthened the Appellant’s position, since she accepted in cross-examination that parts of her evidence were wrong and incomplete, her oral evidence contradicted her statement and she could not speak to the matters within the knowledge of Officer McGuigan or the authorising officer. It was contended that the Tribunal should disregard the entirety of Officer McGuigan’s evidence, save for accepting the literal contents of any undisputed documents she exhibited.[98]Mr Lewis submitted that the Tribunal should attach weight to Officer McGuigan’s written evidence notwithstanding her absence. Her witness statements formed part of the evidence properly before the Tribunal and her non-attendance for personal reasons, should not result in the exclusion or disregard of her evidence. The documents exhibited by Officer McGuigan provided a sufficient evidential basis for the conclusions she expressed and these documents were routinely used by HMRC officers when assessing compliance. The information contained in the exhibits, including NIC records, blank employer records and the P14 spreadsheet, demonstrated that the Appellant’s declared tax position was incorrect and supported the conclusions HMRC had drawn. Mr Lewis further submitted that the Appellant’s criticisms of Officer Rae’s evidence were overstated and that she had not accepted her evidence was materially wrong. Rather, she had merely clarified or corrected a single point under cross-examination. HMRC maintained that her evidence, taken together with that of Officer McGuigan and the documents produced, established that the statutory conditions under Regulation 72 were met and that the Appellant’s criticisms of HMRC’s evidential foundation should be rejected.

Decision on the weight to be attached to the evidence of Officer McGuigan

[99]The Tribunal is required to determine what weight, if any, should be attached to the evidence of Officer McGuigan. HMRC relies on her written statements and accompanying exhibits in support of the Regulation 72 determinations and, in part, the discovery assessments. The Appellant contends that no weight should be attached to her evidence because(i) she did not attend for cross‑examination despite having been put forward as a witness on matters that go to the heart of the appeals;(ii) key assertions in her statement are unsupported by primary material and(iii) there is no evidence from the authorising officer or other decision‑maker at the relevant time. The Appellant accepts that where a written document exhibited by HMRC is undisputed as to its existence and authenticity, it may be treated as such; but contests the use of those documents to prove the broader factual inferences urged by HMRC.[100]As a matter of general principle, the Tribunal determines the weight to be given to any evidence having regard to fairness, the ability of the opposing party to test that evidence, the importance of the issues spoken to and the availability of primary records. Where a witness whose evidence is central to a material issue is not produced for cross‑examination and no sufficient reason is shown for the failure to call that witness or to seek case‑management directions to secure their attendance, it is ordinarily inappropriate to place weight on contested assertions contained in that witness statement.[101]HMRC relied upon Officer McGuigan as the principal witness addressing what material was available at the relevant time and how HMRC formed the necessary view and opinion. That evidence goes directly to the statutory tests. Officer McGuigan did not attend for cross‑examination. HMRC did not seek a direction compelling attendance, did not notify the Appellant sufficiently in advance of the hearing to allow such an application and did not call an alternative witness who could speak from personal knowledge to the same matters. It is clear from the correspondence and COP9 meeting notes that Officer O’Prey initially took the lead role in HMRC’s investigations into the Appellant. During cross-examination, Officer Rae confirmed that Mr O’Prey had also left HMRC, there was no suggestion that HMRC had endeavoured to contact Mr O’Prey to give evidence. In these circumstances and given the importance of the issues on which Officer McGuigan’s assertions are relied upon, it would be unfair to attach weight to contested factual assertions that have not been, and cannot now be, tested.[102]In her supplementary statement, Officer McGuigan advances propositions about three documents (exhibited to her witness statement) which are said to have been available to HMRC and what they evidenced at the material time. However:(1) She does not state that these matters are within her personal knowledge nor does she identify the sources from which the documents were obtained in a way that enables the Tribunal to assess reliability.(2) The timing is unspecified: there is no evidence as to when those exhibits were created, retrieved or considered in relation to the authorisation date; nor is there evidence that they were the materials actually relied upon by the relevant officer at the time of the Regulation 72 authorisation.(3) No primary HMRC records (for example, contemporaneous note(s) of decision, internal emails or system logs tying the exhibits to the decision‑maker) were produced to connect the exhibits to the statutory decision at the relevant point in time.[103]These gaps materially undermine the probative value of her untested assertions.[104]We distinguish between the existence and contents of a document, and the conclusions said to flow from it:(1) Undisputed documents: Where a document exhibited by HMRC is not disputed by the Appellant as to authenticity and literal content (e.g. that a particular screen print bears certain entries or that a spreadsheet lists particular figures), the Tribunal accepts that the document exists and contains the text or entries shown. The Tribunal accords limited weight to such acceptance: it proves what the document says, not the truth of the underlying facts or the completeness of the record and not that the document was before or relied upon by the relevant officer at the material time.(2) Contested use of the Exhibits: HMRC seeks to use the exhibits to prove broader propositions e.g. that PAYE was not operated for specified periods or that certain years’ data were complete and accurate bases for inference. Those propositions are contested. In the absence of the witness best placed to explain provenance, completeness, and timing—and with no corroborating primary material from the decision‑maker—the Tribunal does not attach weight to the exhibits for those broader purposes.[105]The authorising officer identified for the Regulation 72 determinations did not give evidence. HMRC adduced no statement from that officer and provided no explanation for the absence. The Tribunal does not treat the mere absence as determinative; however, in a case where the statutory state of mind at a specific date is in issue and is challenged, and where HMRC relies on a different officer’s hearsay to fill that gap, the absence of any evidence from the actual decision‑maker or any contemporaneous record tying the decision to identified materials weighs heavily against attaching weight to assertions that the statutory tests were in fact satisfied at the time.[106]HMRC relied in part on the evidence of Officer Rae, ostensibly to contextualise process and practice. Officer Rae could not speak from personal knowledge to the specific materials and considerations attributed to Officer McGuigan nor the authorising officer, and elements of her evidence were corrected in cross‑examination. Her evidence therefore does not make good the foundational gaps identified above and does not provide a reliable source for the contested inferences HMRC asks the Tribunal to draw.[107]For the above reasons, the Tribunal attaches no weight to Officer McGuigan’s contested assertions and opinions, including those directed to what material was available at the relevant time and what inferences should be drawn from it. The Tribunal does, however, accept the existence and literal contents of any written documents exhibited by HMRC that the Appellant does not dispute (for example, that a particular screen print contains certain entries, or that a spreadsheet contains certain figures). Such acceptance is strictly limited to what the document records on its face; it does not extend to(i) the truth of the underlying facts asserted by that document;(ii) any inference that PAYE was or was not operated;(iii) the completeness of HMRC’s records; or(iv) any conclusion that such documents were the materials actually before the decision‑maker at the time the statutory state(s) of mind had to be formed.[108]On that basis, the Tribunal proceeds on the footing that no evidential weight is to be given to Officer McGuigan’s evidence save to the extent that an undisputed exhibit is relied upon merely as proof of its own existence and face‑value content.

Findings of fact

[109]From the witness evidence we have summarised above and our decision on the weight to be attached to Officer McGuigan’s evidence, we find the following facts.[110]It was not unusual how the Appellant’s commission was calculated; the DSL practice was no different to how commission had been calculated in his previous sales roles. The commission figures were calculated by the Glasgow office and the Appellant had relied upon them to get it right.[111]There were occasions where, for ease of administration, Glasgow would pay a commission lump sum into the Appellant’s NatWest bank account for him to distribute to the other London sales staff and traders. The Appellant’s NatWest bank statements record the receipt of a single commission payment from DSL and amounts totalling the amount received being paid out to named individuals. The amounts recorded on the spreadsheet analysing the amounts paid into the Appellant’s NatWest account does not take account of the lump sum commission payments that the Appellant received which were then paid out to various London employees. The Appellant’s NatWest bank statements record the receipt of a single commission payment from DSL and amounts totalling the amount received being paid out to named individuals.[112]The Appellant’s only contact with the liquidators was when two Finn & Co employees visited the London office to assess what could be sold and took the remaining IT equipment.[113]The Appellant provided copies of all his bank statements and all his monthly expense receipts to his accountant on an annual basis. He relied completely upon his accountant to complete his self-assessment tax returns; his involvement was limited to providing all bank documents and expense receipts to his accountant and signing the self-assessment return. The Appellant’s evidence was not challenged and we accepted his evidence.[114]The Appellant’s sales background meant that that he was wholly unequipped to deal with the financial issues which DSL faced and he brought back Tom Bell as a consultant to assist him with putting DSL into administration.[115]Although the Appellant was appointed a director with effect from 1 May 2008, that appointment did not, in practice, alter the nature of his duties or confer upon him control over DSL’s financial or payroll functions. He did not receive a formal contract of employment, was not provided with payroll documentation and was not inducted into any role involving oversight of PAYE, NICs or financial compliance. His evidence, which we accept, was that the appointment was understood by him as conferring status and credibility in dealings with clients rather than responsibility for the company’s administration.[116]We have accepted his evidence that he was verbally informed that his monthly income was based on a £10,000 per month base salary plus any commission generated that exceeded his base salary. That evidence is supported by the bank statements in evidence. His monthly salary therefore fluctuated but did not drop below his base salary level.[117]The Appellant was aware from his general dealings with Glasgow that all the directors of DSL were employed by DSL. He understood that an employee was, unlike the self-employed, subject to tax at source on their earnings and that this was a requirement of being an employee. We have accepted on the balance of probabilities that was the limit of his knowledge of employee taxation at the time. He assumed, and we accepted his evidence, that Glasgow would, as it dealt with all other administration for DSL, deal with all matters relating to deduction of tax from his income and make any required payments to HMRC. That conclusion is supported by the evidence of DS who confirmed that “all financial control and general administration (HR and payroll) of DSL was based in the Glasgow office and overseen by Tom Bell”.[118]The Appellant believed that all payments he received had been subject to tax. We accept that he had no reason for believing otherwise as his commission levels were increasing because of the success of the London office and that any commission paid to him was subject to various deductions determined by Glasgow over which he had no oversight. We accepted his evidence that, as his income was not fixed, he believed that DSL were deducting all relevant amounts and the amount received was his net income.[119]The Appellant’s evidence was that, as he had never been employed before, he was wholly ignorant of what an employee should receive, had no knowledge of payslips or any of the formal documents that an employee is supposed to receive. He stated that he has subsequently become aware of such matters but did not have this knowledge at the time. We have not accepted his evidence that he was wholly ignorant of what formal documents an employee should receive such as payslips or P60s: payslips and P60s have entered common parlance and we find it more likely than not that he was aware of such things. We have accepted and find that the Appellant was not aware of what information should be contained in a payslip or P60.[120]The Appellant was not challenged on his evidence that following his appointment as a director he continued to send all documents and correspondence received from HMRC including tax returns to TAS Ltd for his accountant to deal with. He provided copies of his bank statements and all his monthly expense receipts to his accountant on an annual basis. We accepted his evidence that he relied completely upon his accountant to complete his self-assessment tax returns, his involvement was limited to providing all bank documents and expense receipts to his accountant and signing the self-assessment return. HMRC did not challenge the competency of the Appellant’s accountant and we accept that the accountant was competent.[121]We do not accept HMRC’s submission that because the Appellant was selling financial products it follows that he was financially sophisticated such that he was familiar with all matters relating to finance including income tax and NICs. There was no evidence before the Tribunal to support HMRC’s submission and we have accepted the Appellant’s evidence that the extent of his financial knowledge was limited to the financial products that he sold.[122]The Appellant did not have access to DSL’s bank accounts until the resignation of Tom Bell in August 2010. Following the resignation of Tom Bell in August 2010, the Appellant became the only remaining director of DSL. However, by that point DSL was already in severe financial distress, trading had effectively ceased following the market events of May 2010, and the company was moving towards administration. The Appellant’s role during this period was directed to the orderly winding down of the business and engagement with external advisers. We find that the Appellant did not thereby acquire, nor was he in fact able to exercise, meaningful control over historical payroll processes, PAYE compliance, or the manner in which payments had previously been made to him.[123]The Appellant was paid £82,000 after the 2 August 2010 when he was the sole director. Two of the payments dated 10 May 2011 and 13 May 2011, both for £2,500, have the reference “Dan Witton Wages” but were not recorded in HMRC’s spreadsheet. The Appellant’s evidence was that the two payments of £2,500 were commission payments that he was still receiving. The remainder of the payments received were reimbursement of expenses such as travel and food whilst liquidating DSL. We find that the payments received by the Appellant after August 2010 occurred in the context of DSL’s collapse and were limited in amount. We accept the Appellant’s evidence that these payments represented residual commission arising from historic client referrals and reimbursement of expenses incurred in connection with the winding down of the business. The fact that two relatively small payments bore a reference to “wages” does not, in the circumstances, establish that the Appellant knew how PAYE was being operated in respect of his remuneration, particularly given the informal and deteriorating state of the company’s administration at that time.[124]At no point during the administration or liquidation of DSL did Tom Bell, the liquidator or HMRC notify him that no income tax or NICs had been deducted from his commission payments. The Appellant was not aware of this until HMRC commenced an investigation in April 2017 some six years after DSL went into administration. By that time, he had retained little or no documentation other than bank statements in respect of the payments received.[125]We find that there is no evidence before the Tribunal nor was it submitted that the Appellant was involved in or gave instructions for the wholesale destruction of DSL’s records before it went into administration.[126]The Appellant was disqualified from being a director for 10 years for failure to discharge his duties under the FSA and not for any failure of his obligations as a director of DSL.[127]The Appellant had signed off the final accounts for DSL on the basis that they had been prepared by Johnstone Carmichael and he had been asked to sign them. In response to the Member’s questions, the Appellant confirmed that there had been no discussion about the accounts, he had not been “walked thought them”, he did not understand them and he had not asked any questions. We have accepted his evidence that he was not taken through the accounts, did not understand their technical content, and was not alerted to any issues concerning PAYE, NICs or the tax treatment of directors’ remuneration. His signing of the accounts was a formal act carried out in reliance on professional advisers and does not support an inference that he knew whether PAYE was, or was not, being operated in respect of his own payments. Submissions Appellant’s

Submissions

[128]Mr Avient submissions are summarised as follows.[129]The Appellant’s case is that every impugned assessment, direction and decision should be set aside because HMRC have not discharged the burden of proof that the statutory pre‑conditions were met. For the early years, 2006/07 and 2007/08, HMRC were only entitled to make discovery assessments outside the ordinary time limit if they prove that any loss of tax was brought about deliberately by the Appellant and the evidence does not come close to establishing the necessary subjective state of mind. The Appellant’s evidence was that throughout the relevant period he had completely relied upon a competent accountant to prepare his self‑assessment returns, supplying the underlying records and bank statements, and that he did not himself understand how taxable profits were computed.[130]Against that backdrop, HMRC’s approach—treating the size of the alleged understatement as a proxy for deliberate behaviour—conflates receipts, turnover and profit, ignores immediate onward payments to other members of his sales team, and in any event cannot surmount the evidence of genuine reliance on professional advice. On the Appellant’s case, the most that could be inferred is carelessness; and carelessness (or even recklessness) is not the same as the deliberate conduct required to engage the extended time limit.[131]For the later years, 2008/09 to 2010/11, the Appellant accepts that no tax returns were filed but maintains that HMRC must still prove deliberate loss of tax to rely on the twenty‑year time limit. HMRC’s two bases—alleged non‑operation of PAYE/NIC and the mere fact of non‑filing—do not establish deliberate behaviour on the Appellant’s part. His evidence is that, once appointed as a director he was treated as an employee, he believed the payments he received were net of tax and that PAYE was being properly operated and, proceeding on that belief, he did not file returns in respect of that employment income. Even if that belief was mistaken, it is inconsistent with a deliberate intention to bring about a loss of tax. It is of note that it was not put to him in cross‑examination that he intentionally failed to file returns to avoid tax, and that HMRC cannot invite such a finding in submissions when it was not put squarely to him in the witness box.[132]The central plank of the Appellant’s challenge to the PAYE/NIC route concerns Regulation 72(5) (Condition B). The burden lies on HMRC to prove that the statutory gateway was crossed at the time of authorisation: first, that it appeared to HMRC that the employer failed to deduct the amount of tax which should have been deducted; and secondly, that HMRC formed the opinion that the failure was wilful, and that the Appellant knew of that wilful failure when he received the payments. The direction in this case was authorised on 4 August 2020 by Officer Eileen Kerr. HMRC have adduced no evidence from Officer Kerr and no contemporaneous record of the material before her or the reasoning she adopted. No explanation was offered for her absence. The Appellant therefore invites the Tribunal to draw an adverse inference that the statutory conditions were not met.[133]Mr Avient submitted that HMRC’s attempt to bridge the evidential gaps through the evidence of other officers fails as a matter of principle and proof. Officer McGuigan’s supplementary statement asserts that three internal documents (an NI record print, an employment history extract, and a P35/P14‑based listing) supported the direction, but she does not say she was present at the authorisation, that she saw Officer Kerr consider those materials, nor that they were before the decision‑maker at the time. Nor Office McGuigan identify the source of her knowledge where it is not personal. Officer Rae’s evidence—advanced to show the investigation was conducted “in an orthodox fashion”—does not address what the authorising officer considered and, in any event, her evidence required correction on points of detail. On the Appellant’s case, this is not a technicality: the Regulation confers a conditioned power and HMRC must prove the actual satisfaction of the pre‑conditions by the actual decision‑maker, not by reconstruction or inference.[134]As to the documents themselves, the Appellant submits that they do not do the work that HMRC ascribe to them. The NICs record is an individual entitlement record, not a PAYE compliance return, and is acknowledged to be subject to correction; the employment history extract is incomplete and not shown to be a comprehensive record; and the P35/P14‑derived print is a clerical output rather than the underlying return, with no evidence as to accuracy, provenance or that it was before the authorising officer in August 2020. Even taken at their highest, none of the three documents proves that DSL failed to deduct PAYE in respect of the Appellant, still less that any such failure was wilful and that he knew of it when he was paid.[135]On knowledge and wilfulness more widely, HMRC’s case slides impermissibly from “knew” to “ought to have known” or relies on generalised director’s duties under Company Law to fill an evidential void. The Appellant’s evidence is that he had no involvement in payroll or DSL’s Glasgow‑based finance function, had no access to DSL’s banking function and there is no contemporaneous evidence that he knew PAYE was not being operated for him. The Appellant points to the absence of any contemporaneous payroll criticism in the audited accounts and governance records, submitting that HMRC’s theory—that PAYE was properly run save for him, the highest‑paid director—is implausible if one assumes competent auditors and accountants. It is not enough for HMRC to say that the Appellant must have realised from the absence of payslips or from gross payments that no PAYE was being operated; that is, again, an “ought to have known” case, not proof of actual knowledge required by Condition B.[136]In relation to the quantum in the early years, the Appellant reiterates that HMRC’s schedules of bank receipts are not a measure of taxable profit and that HMRC produced no primary evidence tying receipts to profit once allowances and immediate onward payments are accounted for. Having abandoned the “staleness”; the dispute turns on burden of proof, deliberateness and Reg 72 gateway compliance. Finally, as to penalties for 2006/07 and 2007/08, they are parasitic on HMRC proving deliberate inaccuracy; if HMRC fail on the extended time‑limit or on state of mind, the penalties must fall with the assessments.[137]The Appellant’s overall position is therefore that HMRC have not proved deliberate behaviour in the self‑employment years; have not proved, through admissible primary evidence of the authorising officer’s decision, that the Regulation 72(5) Condition B pre‑conditions were satisfied; and have not proved the Appellant’s actual knowledge of any wilful PAYE failure.[138]In those circumstances, the Tribunal should allow the appeals, set aside the Regulation 72 direction and the section 8 NIC decisions, vacate the discovery assessments for all years in issue, and cancel the associated penalties.

HMRC’s submissions

[139]Mr Lewis submissions on behalf of HMRC are summarised as follows.[140]The appeals should be dismissed in their entirety and the Tribunal should uphold the discovery assessments, Regulation 72(5) PAYE directions, NICs decisions and penalty determinations under appeal. HMRC’s case proceeds on the basis that the Appellant’s tax affairs, across both the self‑employed and directorship periods, involved significant and deliberate failures to account properly for tax and that HMRC have met the statutory conditions for each assessment and decision on the balance of probabilities.[141]In relation to the tax years 2006/07 and 2007/08, HMRC submit that valid discoveries were made pursuant to section 29 TMA. HMRC accept that, because the Appellant filed returns for those years, they must establish that the loss of tax was brought about deliberately in order to assess beyond the ordinary four‑year time limit. HMRC submit that this test is met. They rely on the size of the discrepancy between the taxable profits returned and the sums received into the Appellant’s bank account, contending that the level of understatement was so substantial that the Appellant must have been aware that the figures returned could not be correct. Even allowing for business expenses, the magnitude of the differences supports an inference of deliberate understatement.[142]The Appellant’s reliance on an accountant does not preclude a finding of deliberateness. The Appellant retained ultimate responsibility for his tax affairs and could not reasonably have failed to notice that the tax being paid bore no sensible relationship to the amounts he knew he was earning. It is submitted that the Appellant was familiar with the receipt of substantial commissions, regularly monitored their receipt through his bank account and must have appreciated that the resulting tax liabilities were inconsistent with the modest amounts declared. The Appellant either knew that the figures were wrong or deliberately chose not to question them. HMRC rely on authority, including HMRC v Tooth [2019] EWCA Civ 826 , that deliberate inaccuracy encompasses situations in which a taxpayer is aware of an inaccuracy and allows it to persist, even if the return was prepared by an adviser.[143]Turning to the tax years 2008/09, 2009/10 and 2010/11, HMRC submit that the Appellant failed to file tax returns despite notices and penalty warnings. HMRC accept that discovery assessments under s29 TMA require proof that any loss of tax was brought about deliberately in order to rely on the extended time limit in s36(1A) TMA. This requirement is satisfied on two independent bases. First, that PAYE tax and NICs were not deducted from income paid to the Appellant following his appointment as a director and employee of DSL and that the Appellant knew this to be the case. Second, the continued failure to submit returns, in the context of the Appellant’s knowledge of his income and tax obligations, itself evidences deliberate behaviour.[144]HMRC submit that the Appellant could not have believed that his tax affairs were in order once he became a director. Reliance is placed on the absence of any payslips and P60s, the receipt of gross payments, and the lack of an operative payroll during parts of the relevant period. The belief that PAYE was being operated is implausible in circumstances where the Appellant did not receive any payroll documentation and continued to receive substantial sums directly into his bank account. The Appellant’s explanation for not filing tax returns is inconsistent with his experience, seniority and awareness of regulatory obligations.[145]In relation to PAYE, following his appointment as a director the Appellant was an employee of DSL for PAYE purposes and that DSL failed to deduct PAYE tax and Class 1 NICs from payments made to him. This failure was wilful on the part of DSL the Appellant received the payments knowing of that wilful failure, thereby satisfying Condition B in Reg 72(5) of the PAYE Regulations. The purpose of Regulation 72(5) is to prevent a loss of tax where an employee knowingly participates in non‑compliance and to transfer liability appropriately from employer to employee where the statutory conditions are met.[146]The Regulation 72 direction was lawfully authorised and it was not necessary for the authorising officer to calculate precisely the amount of tax under‑deducted, only to be satisfied that PAYE had not been properly operated. HMRC submit that sufficient evidence existed within HMRC’s records to support that conclusion, including the absence of PAYE returns and employment records, and those materials were adequate to justify the authorising officer’s decision. The witness evidence from the officers involved in the investigation demonstrates that the case was handled in an orthodox manner and that appropriate checks were undertaken before the decision was made.[147]The Appellant exercised a position of significant authority and control within DSL, particularly in the latter period after the resignation of other directors. The Appellant was a controlling mind of DSL during the latter period, had knowledge of its financial position, and was able to extract funds from the business. HMRC submit that this degree of control supports an inference that the Appellant knew how he was being paid and whether PAYE was being operated. Mr Lewis submitted that the Appellant’s signing of company accounts and his continued receipt of payments after August 2010 reinforce HMRC’s case that he was aware of the non‑operation of PAYE.[148]As to penalties for 2006/07 and 2007/08, those determinations are correct and proportionate. The inaccuracies were deliberate and that the penalty percentage of 50%, after abatements for disclosure and cooperation, was appropriate. HMRC agree that the penalties are parasitic upon the validity of the underlying discovery assessments and should stand if those assessments are upheld.[149]In conclusion, HMRC submit that, viewed cumulatively, the documentary evidence, the Appellant’s admissions, the inferences properly to be drawn from the financial records, and the Appellant’s senior role within the company establish, on the balance of probabilities, that the statutory conditions for the assessments, decisions and directions under appeal were satisfied.

Discussion

[150]Mr Avient structured the Appellant’s case in two parts. The first concerned the discovery assessments and associated penalty determinations for the tax years 2006/07 and 2007/08. The second concerned the discovery assessments for the tax years 2008/09 to 2010/11, together with the section 8 NIC decisions and the determination under regulation 72(5) of the Income Tax (PAYE) Regulations 2003. HMRC’s skeleton argument adopted the same broad division, albeit advancing different bases for upholding the decisions. We have followed the Appellant’s structure, which is both logical and consistent with the statutory frameworks engaged.[151]Throughout the Discussion we have borne in mind that the burden of proof rests on HMRC in respect of the matters which entitle them to assess outside the ordinary time limits or to rely upon specified statutory conditions. Where HMRC seek to rely on inferences, the Tribunal must be satisfied that those inferences are the only reasonable conclusions available on the evidence.

Part 1 2006/07 and 2007/08

[152]For the tax years 2006/07 and 2007/08 the Appellant filed self‑assessment returns. HMRC were therefore only entitled to raise discovery assessments outside the normal four‑year time limit if the loss of tax was brought about deliberately by the Appellant or a person acting on his behalf (ss 29(4) and 36(1A) TMA 1970). It is common ground that the burden of establishing deliberate behaviour rests on HMRC.[153]HMRC’s case in respect of these years was that the Appellant deliberately understated his taxable profits from self-employment. That case was set out at paragraphs [61]–[63] of the Statement of Case and expanded upon in Mr Lewis’s oral submissions. HMRC accepted that the Appellant filed self-assessment returns and that, absent deliberate behaviour, the ordinary time limits would apply. HMRC did not allege deliberate behaviour on the part of the Appellant’s accountant, nor did they allege that the Appellant withheld information from that accountant.[154]HMRC’s case therefore relied on inference. They relied on the size of the discrepancy between the taxable profits returned and the amounts paid into the Appellant’s NatWest bank account. HMRC submitted that the disparity was so substantial that the Appellant must have known that the returns were wrong or at least must have deliberately refrained from checking them. HMRC further submitted that reliance on an accountant could not avail the Appellant in circumstances where the inaccuracy was obvious.[155]The Appellant’s submissions were set out in detail at paragraphs [11]–[21] of the skeleton argument. In summary, Mr Avient submitted that the test for deliberate behaviour under sections 29(4) and 36(1A) TMA is a subjective one. He relied on case law to the effect that deliberate behaviour requires actual knowledge of inaccuracy or, at a minimum, blind-eye knowledge. The Appellant had relied entirely on a competent accountant, provided all underlying records, and lacked the specialist knowledge required to identify any understatement. HMRC’s approach impermissibly removed the distinction between careless and deliberate.[156]We have accepted the Appellant’s submissions. The statutory language is clear. Parliament has drawn a deliberate distinction between losses of tax brought about carelessly and those brought about deliberately. The latter engages a significantly extended time limit. It follows that the threshold for establishing deliberate behaviour is correspondingly high.[157]The Appellant’s evidence, which we have accepted, was that he relied entirely on his accountant for the calculation of taxable profits. HMRC did not assert that the accountant was not competent nor that the Appellant did not provide his accountant with all relevant information. It was not asserted by HMRC that the under assessment was brought about deliberately by the Appellant’s accountant. In those circumstances, HMRC’s reliance on the scale of the discrepancy is misplaced. The calculation of taxable profits in a commission-based business, particularly where receipts may include sums intended for onward payment to others, is not a matter of simple arithmetic obvious to a layperson. The fact that an accountant arrived at the wrong figure does not, without more, establish that the taxpayer appreciated that fact.[158]The case law makes clear that “deliberate” in this context is a subjective test. The Tribunal must be satisfied that the taxpayer knew the return was inaccurate and intended, or at least consciously accepted, the resulting loss of tax. Carelessness, even gross carelessness, is insufficient. That distinction is emphasised in numerous cases, including Auxilium Project Management Ltd v HMRC [2016] UKFTT 0249 (TC) (“Auxilium”) and Charles Collier and another v HMRC [2023] UKFTT 993 (TC) at [31]-[32], and is not displaced by HMRC v Tooth [2018] UKSC 17 (“Tooth”).[159]In Auxilium at [63] the Tribunal stated:
“In our view, a deliberate inaccuracy occurs when a taxpayer knowingly provides HMRC with a document that contains an error with the intention that HMRC should rely upon it as an accurate document. This is a subjective test. The question is not whether a reasonable taxpayer might have made the same error or even whether this taxpayer failed to take all reasonable steps to ensure that the return was accurate. It is a question of the knowledge and intention of the particular taxpayer at the time.”
[160]In CF Booth Ltd v HMRC [2022] UKUT 217 (TCC) at [41] the UT confirmed that Tooth had not changed the test for a deliberate inaccuracy:
“As the FTT held in Auxilium, deliberate inaccuracy occurs when a taxpayer knowingly provides HMRC with a document that contains an error with the intention that HMRC should rely upon it as an accurate document. We do not consider that anything said by the Supreme Court in Tooth calls that test into question.”
[161]Despite the clear case law, HMRC’s submissions repeatedly framed the issue in terms of what the Appellant “must have realised” or “should have realised”. That formulation reveals the fundamental weakness in HMRC’s case. The statutory test is not objective. It is not sufficient that the Appellant might have realised something had he scrutinised the returns more carefully. The question is whether he did in fact know that the returns were inaccurate or deliberately chose not to confirm a fact which he believed to be true.[162]HMRC’s primary submission was that the discrepancy between the profits returned and the amounts identified in the Appellant’s bank statements is so large that knowledge could be inferred as matter of “common sense”. HMRC described this as a “common sense” inference.[163]We reject that submission. First, HMRC’s approach assumes, without proof, that all receipts into the Appellant’s bank account constituted his taxable income. We have accepted the Appellant’s evidence which is supported by the NatWest bank statements that some receipts were paid on to other sales staff and that the bank statements therefore do not equate to profit. HMRC did not adduce primary evidence to show otherwise.[164]Secondly, HMRC’s methodology treated gross receipts as turnover while leaving costs and expenses unchanged. That approach is analytically unsound unless it is first established that the receipts represent the Appellant’s income. That evidential gap cannot be filled by inference.[165]Thirdly, the inference of deliberate behaviour is inconsistent with the unchallenged evidence that the Appellant relied entirely on a professional accountant, provided all relevant records, and did not understand how taxable profit was calculated. While reliance on professional advice does not automatically absolve a taxpayer of responsibility, it is highly material to the question of subjective intent. Where the taxpayer does not understand the calculation and has no reason to suspect wrongdoing, deliberateness is not established.[166]HMRC placed reliance on HMRC v Tooth [2018] UKSC 17 at [47] for the proposition that allowing an inaccuracy to persist may amount to deliberate behaviour. At [47] the SC stated:
“47. It may be convenient to encapsulate this conclusion by stating that, for there to be a deliberate inaccuracy in a document within the meaning of section 118(7) there will have to be demonstrated an intention to mislead the Revenue on the part of the taxpayer as to the truth of the relevant statement or, perhaps, (although it need not be decided on this appeal) recklessness as to whether it would do so.”
[167]That reliance is misplaced. Tooth concerned a taxpayer who knowingly entered figures in a manner intended to exploit the self-assessment system. It does not support the proposition that a taxpayer who relies on an adviser, without understanding the underlying computation, acts deliberately merely because the result is wrong.[168]As subsequent cases have made clear, Tooth does not remove the distinction between carelessness and deliberateness. HMRC’s submission risks doing precisely that.

Conclusion on 2006/07 and 2007/08

[169]HMRC have failed to discharge the burden of proving that any loss of tax for 2006/07 or 2007/08 was brought about deliberately. The discovery assessments are therefore out of time and invalid.[170]It follows that the penalty determinations under section 95 TMA, which are parasitic upon the assessments and depend on deliberate or negligent behaviour, must also be set aside. Part 2: 2008/09, 2009/10 and 2010/11 Discovery assessments, NIC decisions and Regulation 72(5)

Part 2: 2008/09, 2009/10 and 2010/11

[171]HMRC advanced two principal arguments in relation to the later years. First, they contended that the Appellant knew that PAYE was not being operated on his remuneration and that this knowledge constituted deliberate behaviour for the purposes of s36(1A) TMA 1970 and regulation 72(5). Secondly, they relied on the Appellant’s failure to file tax returns for these years as further evidence of deliberate conduct.[172]In relation to regulation 72, HMRC submitted that PAYE had not been deducted and that the Appellant, as a director receiving substantial payments, must have appreciated that fact. HMRC also relied on the Appellant’s status as a director and, in later years, his position as the only remaining director, as supporting an inference of knowledge and control.[173]The Appellant’s submissions were that HMRC bore the burden of establishing each element of regulation 72(5) Condition B. Mr Avient submitted that HMRC had failed to prove that PAYE was not deducted, failed to prove any wilful failure by the employer, and failed to prove that he knew of any such failure. He further submitted that non-filing of returns is not, of itself, evidence of deliberate behaviour, particularly where he believed PAYE was being operated.

Discovery assessments and non-filing

[174]We deal first with HMRC’s reliance on non-filing of returns. HMRC again rely on the extended twenty‑year time limit under section 36(1A) TMA. HMRC submitted that the Appellant’s failure to file returns for 2008/09 to 2010/11 was deliberate. We reject that submission. It was accepted by the Appellant that he did not file tax returns for these years but Mr Avient submitted, correctly, that non‑filing does not of itself establish deliberate behaviour.[175]We have accepted the Appellant’s evidence that, following his appointment as a director, he believed that he was paid as an employee and that PAYE was being operated. Proceeding on that belief, he did not consider that he was required to submit further returns in respect of that income. Even if that belief was mistaken, it is inconsistent with a deliberate intention to bring about a loss of tax.[176]Significantly, it was not put to the Appellant in cross‑examination that his failure to file returns was a deliberate attempt to evade tax. HMRC cannot invite such a finding where the allegation was not put and the Appellant was not given the opportunity to address it. At most, the evidence might support carelessness. It does not support deliberateness.[177]Accordingly, HMRC have failed to establish deliberate behaviour for the later years, and the extended time limit under section 36(1A) TMA 1970 is not available.

Regulation 72(5) PAYE direction and NIC decisions

[178]Regulation 72(5) Condition B imposes a two stage statutory gateway. HMRC must prove that, at the relevant time:(a) it appeared to HMRC that the employer failed to deduct PAYE; and(b) HMRC were of the opinion that the employer wilfully failed to deduct PAYE and that the employee received the payments knowing of that wilful failure.[179]HMRC may only transfer liability to the employee if the statutory conditions are satisfied. The Upper Tribunal in HMRC v West [2018] UKUT 0100 (TCC) makes clear that the burden lies on HMRC to prove that the conditions were met. At [33] the UT stated:
“33. Dealing first with income tax, Judge Clark accepted (and indeed it was common ground) that in order to determine whether regulation 72 of the PAYE Regulations applied, there were three issues to be considered. Only if HMRC could succeed in their arguments on all three would Mr West be liable to the income tax charge. The three issues were: (a) On making the relevant payment, did Astral deduct the amount of tax which it should have deducted? (b) If not, was Astral's failure to deduct wilful? (c) If so, did Mr West receive the relevant payment knowing that Astral had wilfully failed to deduct?”
[180]The test is not whether the Tribunal considers that PAYE should have been deducted. It is whether, at the time of the decision, it appeared to HMRC that there was a failure to deduct, and whether HMRC formed the opinion that the employer wilfully failed to deduct and that the employee knew of that failure. The Tribunal must examine whether HMRC have proved that the conditions were satisfied at the time the determination was made.

Evidential deficiencies in HMRC’s case

[181]HMRC seek to rely on Officer McGuigan’s witness statements to establish what material was available and what conclusions were drawn. She did not attend for cross‑examination. We have already set out in detail our reasons for attaching no weight to the contested assertions in Officer McGuigan’s witness statements. Her non‑attendance is particularly significant because her evidence goes directly to the statutory conditions.[182]The Upper Tribunal in Reddrock made clear that where a witness’s evidence is central and the witness is not produced for cross‑examination, it is appropriate to afford that evidence little or no weight. This case falls squarely within that principle.[183]Officer McGuigan’s witness statements do not assert personal knowledge of the matters relied upon. There is no evidence that the documents she exhibited were before the authorising officer at the time of the Reg 72 determination. The Regulation 72 direction was authorised by Officer Eileen Kerr. HMRC called no evidence from her and produced no contemporaneous record of her reasoning. That absence is critical. Regulation 72 decisions turn on the actual decision‑making process, not on post‑hoc rationalisation. HMRC’s failure to call the authorising officer, or to explain her absence, permits the Tribunal to draw an adverse inference. This is not a technicality. It goes to the heart of whether the statutory requirements were satisfied.[184]Officer Rae’s evidence was limited to general oversight and process. She could not speak from personal knowledge to the authorisation of the Regulation 72 direction or to the material before the authorising officer. Elements of her evidence were corrected in cross-examination. Her evidence does not cure the fundamental evidential gaps in HMRC’s case.[185]Even taken at face value, the three documents relied upon by HMRC do not establish what is required. The NIC record is an individual entitlement record, not proof of PAYE compliance. The employment history extract is incomplete. For example, the entries for RW provide employer details for some periods but no details of gross pay, taxable pay or tax for those periods. No explanation is provided in the document for the absence of such information. The P14/P35-derived spreadsheet is a clerical output, not the underlying return, and there is no evidence that it was before the authorising officer. None of these documents proves wilfulness on the part of DSL or knowledge on the part of the Appellant. Nor do they establish that the statutory conditions were satisfied at the relevant time.[186]Even if one were to put the evidential deficiencies to one side, HMRC’s substantive case fails. HMRC repeatedly invite the Tribunal to infer knowledge from the Appellant’s status as a director, the absence of payslips, or the receipt of gross payments. HMRC’s submissions repeatedly slide from what the Appellant ought to have known to what he did know. That is an impermissible substitution of an objective standard for the statutory requirement of actual knowledge. The authorities make clear that “knowing” means knowing, not “ought to have known”. Regulation 72(5) requires proof of actual knowledge of a wilful failure.[187]We accepted the Appellant’s evidence that he had no involvement in payroll, no access to DSL’s bank accounts until late in the company’s life and relied on the Glasgow office for all administrative matters. There is no contemporaneous evidence that DSL wilfully failed to deduct PAYE, and still less that the Appellant knew of any such wilful failure. HMRC’s suggestion that DSL otherwise operated PAYE correctly but deliberately singled out the Appellant is unsupported by the evidence and is inherently implausible.

NICs decisions

[188]The section 8 NIC decisions rest on a similar statutory footing and require proof of wilful failure and knowledge. For the same reasons, HMRC have failed to discharge the burden of proof.

Interaction between regimes

[189]We also note that HMRC pursued discovery assessments, regulation 72 determinations and NICs decisions in respect of the same income without clearly articulating how those regimes interacted. Where Reg 72 applies, the PAYE credit mechanism is displaced. Where it does not, the employee remains entitled to credit for tax that should have been deducted. HMRC’s failure to establish the regulation 72 conditions therefore undermines the associated assessments and decisions.

Conclusion on Part 2

[190]HMRC have failed to prove deliberate behaviour for the later years. They have failed to establish that the statutory conditions for regulation 72(5) Condition B were met. The regulation 72 determination and the section 8 NIC decisions are invalid and must be set aside. The discovery assessments for these years cannot be sustained. Decision For all the reasons set out above we allow the appeals and reduce the penalties to nil. Right to apply for permission to appeal

Decision

[191]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. Release date: 19th FEBRUARY 2026