Oriel Support, R (on the application of) v HM Revenue & Customs

For PAYE purposes, the person liable to deduct tax is identified by the statutory employment and agency rules, not simply by asking who physically disburses the money. An agency supplying workers is treated as their employer, and the workers are treated as its employees. A payment made by a financial intermediary on the agency’s behalf remains, for PAYE purposes, a payment by the agency. The “other payer” and “other payee” provisions apply where a payment is received in a capacity other than employment, such as a separate bonus. The intermediary provisions facilitate discharge of the employer’s PAYE liability without enlarging the definition of employer.

Oriel Support Ltd provided financial outsourcing services to labour providers. It processed workers’ pay, deducted tax and National Insurance contributions, and made payments to workers supplied by the labour providers to end users. The Revenue required PAYE to be remitted under each labour provider’s PAYE reference rather than Oriel’s reference.

Oriel challenged the requirement on the ground that it was an “other payer” under the Income Tax (Pay As You Earn) Regulations 2003. Mr Kenneth Parker QC, sitting as a deputy High Court judge in the Administrative Court, upheld the Revenue’s decision: [2008] EWHC 1304 Admin. The central issue on appeal was whether Oriel and the workers came within the “other payer” and “other payee” provisions, or whether the labour providers remained responsible for PAYE.

1. Appeal dismissed. The labour providers were required to deduct tax by reference to their employees’ tax codes.
2. Under sections 4 and 44 of the Income Tax (Earnings and Pensions) Act 2003, workers employed under contracts of service were employees, while qualifying agency workers were treated as employees of the labour provider. Regulation 10 of the Income Tax (Pay As You Earn) Regulations 2003 treated the agencies as employers and the agency workers as employees.
3. Regulation 21 imposed the deduction obligation by reference to the employee’s code. Regulation 12, read with regulation 2, did not apply merely because Oriel physically made the payments. The relevant question was the capacity in which the worker received the payment. The workers received the payments under their contracts with the labour providers, in their capacity as employees.
4. The “other payer” provisions addressed payments received otherwise than under the employment contract, illustrated by a third-party bonus. They did not govern the ordinary discharge of an employer’s wage obligation.
5. Section 687 of the 2003 Act treated a payment made by an intermediary on behalf of, and at the expense of, the employer as a payment by the employer for PAYE purposes. Oriel acted as such an intermediary. Section 687 provided machinery for discharging the labour provider’s liability; it did not expand the definition of employer. The interaction with section 710 did not alter that conclusion.
6. The court followed the advice stated by Mummery LJ in R(Balding) v SSWP, [2008] 1 WLR 564, paragraph 24.

The order was: Appeal dismissed.

1. Court of Appeal (Civil Division): Appeal from the Administrative Court dismissed.
2. Administrative Court: Mr Kenneth Parker QC upheld the Revenue’s decision and rejected Oriel’s statutory-authority challenge, reported at [2008] EWHC 1304 Admin.