UBS AG, R (on the application of) v The Commissioners for HMRC

A judicial review claim remains live where a public authority withdraws its defence and promises to reconsider, but has not granted the substantive relief sought. The broad discretion under s684(7A)(b) of the Income Tax (Earnings and Pensions) Act 2003 must be exercised consistently with statutory purpose, rationality and other public law principles. Factors such as litigation efficiency, an employee’s ability to provide relevant evidence, employee consent and limitations in alternative PAYE procedures may be relevant, but do not necessarily compel a decision relieving the employer of its PAYE obligations. A decision-maker must not treat unquantified PAYE liability as an absolute bar to considering the discretion, or wrongly treat continuing National Insurance liability as undermining efficiency arguments. The appropriate relief was declaratory and mandatory, requiring a fresh lawful decision.

UBS challenged HMRC’s November 2022 decision concerning the exercise of the discretion under s684(7A)(b) of the Income Tax (Earnings and Pensions) Act 2003. The discretion could relieve UBS from its obligation under the PAYE regime to account for tax arising from gilts delivered to a former employee, Jonathan Wood.

HMRC later withdrew its defence and undertook to make a new decision. HMRC argued that the claim had consequently become academic and sought a stay. UBS maintained that it still sought a decision exercising the discretion in its favour and challenged misdirections of law in the original decision. The central issues were whether the claim remained live, whether the original decision was unlawful, and what remedies should follow.

1. The claim remained live. UBS sought more than reconsideration. It challenged HMRC’s continuing failure to exercise the s684(7A) discretion in its favour. A commitment to make a new decision did not give UBS the relief sought. The stay application was therefore refused.
2. Scope of the discretion. The discretion is broad, free-standing and not confined to exceptional or outlier situations. It must nevertheless be exercised consistently with the statutory purpose, the Padfield principle and Wednesbury rationality. The focus is whether compliance by the payer is unnecessary or inappropriate. Although the employee remains liable for the underlying tax, there is no rule that tax must always be collected from the employer.
3. Relevant considerations. Avoiding parallel litigation, the potential mismatch between a PAYE best estimate and the employee’s ultimate liability, the employee’s evidence, the employee’s support for the discretion, and the limits of Regulation 72 could all be relevant. None, individually or cumulatively, compelled HMRC to exercise the discretion in UBS’s favour.
4. Unlawful misdirections. HMRC unlawfully treated the absence of final quantification as a bar to considering the discretion. Quantum could be relevant, including to recoverability, but it was not an absolute precondition. HMRC also misdirected themselves by treating UBS’s continuing National Insurance liability as detracting from the efficiency argument. That liability would be determined by the amount on which Mr Wood was ultimately taxed as employment income. The alleged assumption that UBS could not be compelled to provide relevant information was not shown to have been made; if it had been made, it would also have been wrong.
5. Relief. UBS did not establish that only a positive decision was lawful. The Tribunal declared the November 2022 decision unlawful to the identified extent and ordered HMRC to make a fresh decision within two months, taking account of the misdirections. The Regulation 80 determination was not quashed.