Stephen White & Anor, R (on the application of) v The Commissioners for HMRC

The power under section 684(7A)(b) of the Income Tax (Earnings and Pensions) Act 2003 permits HMRC to decide that an end user need not comply with PAYE regulations where compliance is unnecessary or inappropriate. The power is broad, but must be exercised rationally, consistently with the statutory purpose and in accordance with the duty to make reasonable inquiries.

HMRC need not investigate every possible source of information about an end user where the scheme structure, available evidence and surrounding circumstances reasonably support the decision. The power may be exercised retrospectively. The personal circumstances of taxpayers do not ordinarily bear on whether an end user should operate PAYE. A non-resident employer's PAYE registration or UK correspondence address does not, without a trading or equivalent UK tax presence, bring it within the PAYE regime.

The claimants used offshore contractor loan schemes operated by Edge Consulting Ltd and Aston Management Ltd. They worked for UK end users, while receiving salary and loans from offshore employers through UK intermediaries.

HMRC decided under section 684(7A)(b) of the Income Tax (Earnings and Pensions) Act 2003 that it was inappropriate for the end users to account for PAYE on the claimants’ employment income. The claimants sought judicial review, alleging inadequate investigation, retrospectivity, mistakes about the employers’ UK tax presence, failure to consider the intermediaries’ status and failure to consider their personal circumstances.

The central issues were whether HMRC had made reasonable inquiries and whether the statutory power had been exercised lawfully.

1. Outcome. Permission to amend the statements of facts and grounds was refused, save for deletions. Permission to apply for judicial review was refused.
2. Further inquiries. The duty identified in Tameside requires only reasonable steps to obtain relevant information. Applying Plantagenet Alliance and the approval of that approach in Balajigari, the court would intervene only if no reasonable authority could have been satisfied that it possessed the information necessary for its decision. HMRC correctly understood the schemes, identified the offshore employers and the commercially unexplained UK intermediary structure, and had rational grounds for concluding that the arrangements were likely concealed from end users. The reasoning in Hoey applied. HMRC was not required to investigate end users’ knowledge, due diligence or alleged turning of a blind eye further.
3. Retrospectivity. Section 684(7A)(b) contains no temporal limitation. The claimants’ argument was properly analysed as an improper-purpose challenge. There was no evidential basis for concluding that HMRC exercised the power to compensate for an earlier failure to pursue end users. The investigation was structured and carried out under the AHP manual.
4. UK tax presence. Following Hoey, voluntary PAYE registration by an offshore employer did not itself create a UK tax presence. Under Clark v Oceanic, a trading presence was sufficient, but none was shown. A UK address, particularly an accountants’ address, was not enough. The claimants’ reliance on BAV v HMRC and Inland Revenue v Stype did not assist because those decisions concerned different tax questions.
5. Intermediaries and personal circumstances. Section 689 did not apply to the UK intermediaries because the claimants performed no duties of their employment for them. HMRC was not required to investigate that alternative. Nor did HMRC have to investigate the claimants’ reasons for entering the schemes, advice received, honest beliefs or financial hardship. Those matters could not remove the underlying tax liability or make it appropriate for end users to pay the tax instead.
6. The decision notices were, in substance, provisional because they invited representations. In any event, any error in issuing them before seeking representations would not have affected the outcome, since HMRC considered and rejected the subsequent material.