Tyler Security Limited v The Commissioners for HMRC

Permission to appeal requires a realistic, rather than fanciful, prospect of success or, exceptionally, another compelling reason. A party disputing whether HMRC used its best judgment must clearly raise that issue in its grounds of appeal or seek permission to amend them; HMRC may be treated as having discharged its burden if the issue is not raised. The question whether potentially non-deductible business costs could support a narrower reading of Income Tax (Earnings and Pensions) Act 2003, section 44(1)(a), remained unresolved but was sufficiently arguable to warrant permission.

Tyler Security Limited supplied specialist dog-handlers to end-clients. HMRC made a determination under the Income Tax (Pay As You Earn) Regulations 2003 for the 2017–18 tax year, on the basis that the agency provisions in the Income Tax (Earnings and Pensions) Act 2003 applied to the engagements. The First-tier Tribunal dismissed Tyler Security’s appeal: [2025] UKFTT 1250 (TC).

The First-tier Tribunal refused permission to appeal, and the Upper Tribunal initially refused permission on renewal. Tyler Security sought oral reconsideration. The Upper Tribunal considered whether the proposed grounds disclosed an arguable material error of law, including whether the contractors personally provided services, whether their work was subject to supervision, direction or control, and whether the First-tier Tribunal should have considered the determination’s amount and HMRC’s use of best judgment. The central remaining question was whether uncertainty about deductibility of dog-related costs could support a narrower interpretation of section 44(1)(a).

Permission to appeal was granted on one narrow ground and refused on all others.

1. Personal provision of services. The statutory question under Income Tax (Earnings and Pensions) Act 2003, section 44(1)(a), was whether an individual personally provided services, not what type of service the agency supplied. The handlers’ work included interpreting and communicating their dogs’ findings, an essential part of the detection service. The dogs’ contribution and the handlers’ inability to perform the work without them did not, by themselves, prevent the handlers from personally providing services. The contractors’ self-employed or VAT-registered status likewise did not displace the statutory conditions. The question whether potentially non-deductible dog-related costs could justify a narrower construction was left open.

2. Contractual condition and control. Section 44(1)(c) asks whether the services described in section 44(1)(a) are provided under or in consequence of the relevant contract; it does not impose a separate requirement for “worker services”. For section 44(2)(a), requiring a contractor to attend at a particular place and time, or to wear a uniform, does not alone establish control over the manner of providing services. However, the First-tier Tribunal had found that handlers were subject to operating procedures, client protocols, tasking directions and supervision of how searches were carried out. Those findings supported its conclusion on supervision, direction or control, and disclosed no arguable error.

3. Best judgment. Although HMRC bears the burden of showing that a determination satisfies regulation 80(2) of the Income Tax (Pay As You Earn) Regulations 2003, an appellant must clearly put best judgment in issue in its grounds or seek permission to amend them. HMRC’s statement of case did not itself put the issue in play. The issue had been flagged to Tyler Security, which did not plead it before the First-tier Tribunal; the Tribunal therefore made no error in treating HMRC as having discharged its burden. The Upper Tribunal agreed that best judgment requires HMRC to consider all material, but that point had not been before the First-tier Tribunal.

4. Other grounds and the permitted ground. The Income Tax (Earnings and Pensions) Act 2003, section 45, did not introduce a new condition where services had been provided. The First-tier Tribunal also did not err by leaving quantum questions undecided where the only issue before it was whether the agency legislation applied. The contractors’ payment of their own tax did not, without a direction under regulations 72 or 81 of the Income Tax (Pay As You Earn) Regulations 2003, answer whether Tyler Security had met its PAYE obligations.

   However, unresolved questions about the deductibility of dog-related costs, and the potential effect of those costs on the contractors’ tax position, gave the proposed argument for a narrower interpretation of section 44(1)(a) a realistic prospect of success. Permission was confined to that ground. The Upper Tribunal did not decide the underlying deductibility or statutory-construction questions.

• Upper Tribunal (Tax and Chancery Chamber). On oral reconsideration, granted permission to appeal on the narrow ground concerning the possible effect of contractors’ costs on the scope of section 44(1)(a), and refused permission on all other grounds.
• Upper Tribunal (Tax and Chancery Chamber). By a decision notice dated 22 June 2026, refused permission on renewal. Tyler Security then applied for oral reconsideration.
• First-tier Tribunal (Tax Chamber). Dismissed Tyler Security’s appeal against HMRC’s PAYE determination: [2025] UKFTT 1250 (TC). It later refused permission to appeal.