Case: PAYE security reduced and payment deadline extended

[2019] UKFTT 0040 (TC)

Judge Nigel Popplewell

Decision released 18 January 2019

Income Tax and National Insurance Contributions (NICs) - Security for payment - Jurisdiction - Reasonableness of the decision to require security - Held decision reasonable - Variation of notice - Income Tax (Pay As You Earn) Regulations 2003 (SI 2003/2682), Pt. 4A, Social Security (Contributions) Regulations 2001 (SI 2001/1004), Sch. 4, Pt. 3B.

Smith [2019] TC 06936


HMRC understood that Mr Smith (the appellant) had been involved with eight companies which had either gone into liquidation or ceased to trade leaving VAT, PAYE and NIC debts of over £700,000. As a result, when the appellant registered for PAYE as a sole trader, in what HMRC considered to be a continuation of a trade carried on by a company (Just Bi-Folds Joinery Ltd or ‘Bifolds’) which they considered him to have been a shadow director of, they required the appellant to provide security for PAYE and Class 1 NICs. This was under the legislation in the Income Tax (Pay As You Earn) Regulations 2003 (SI 2003/2682), Pt. 4A and the Social Security (Contributions) Regulations 2001 (SI 2001/1004), Sch. 4, Pt. 3B. The sum of £31,349 was required, being outstanding PAYE and NIC debts and an estimate of PAYE and NICs due to be paid for a four month period (based on Bifold’s records). The appellant did not challenge the reasonableness of HMRC’s decision to require security, however he contended that the amount required was excessive. He also took issue with being categorised as a shadow director of Bifolds.

The FTT found that even if the appellant had not been a shadow director of Bifolds, it still left over £500,000 owed to HMRC by businesses with which he was involved.

The FTT first considered its supervisory jurisdiction with regard to HMRC’s original decision to require a security. Given the appellant’s involvement with businesses which had been serially non-compliant as regards payment of PAYE and NIC’s, the FTT viewed HMRC’s decision to request security from the appellant for PAYE and NIC to be a reasonable one. It also thought that it was reasonable to base the PAYE and NIC’s on the amounts owed by Bifolds when it went out of business and on an estimate of PAYE and NICs due for a four month period. It was unclear whether HMRC had considered hardship when they made their original decision, but it had been considered when the decision was reviewed, and the FTT did not believe that the original decision was flawed by any failure to consider it at that time.

The FTT then considered its appellant jurisdiction provided by SI 2003/2682, reg. 97V (for PAYE) and SI 2001/1004, reg. 29V (for NIC) allowing it to consider the position at the date of the hearing. On this basis the FTT decided to reduce the required security to £8,952, comprising £6,390 of debts and £2,562 as a reduced estimate of PAYE and NICs due for a four month period (because the appellant had fewer employees). The FTT also extended the date on which the security should be paid from 30 days to 42 days, given the appellant’s evidence regarding his ability to pay.


Judge Nigel Popplewell agreed with everything Judge Berner had said in D-Media Communications Ltd [2016] TC 05183, regarding the law and the tribunal’s jurisdiction in relation to required securities.

We are likely to see more required security cases in due course as a result of the planned extension of the rules to construction industry scheme (CIS) deductions and corporation tax from April 2019.

For commentary on when HMRC can require security for payment of PAYE and Class 1 and 1A NIC, see In-Depth at ¶183-755.

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