Q. There is something that has been confusing me for a while regarding who is ultimately responsible for the payment of PAYE for contractors.
As I’m sure are aware, when the supreme court sided with HMRC in the rangers EBT case, HMRC via the use of APN’s stated that it was the employee that was responsible for any outstanding tax. However if my understanding is correct the latest IR35 regulation states that it is the employer that is responsible of collection of any PAYE. Which piece of legislation is correct, both sides cant be right!
A. Under IR35 where the work is in the public sector it is the end user client (or the agent if there is one) that it responsible for accounting for and paying over the tax and NIC to HMRC but if the client is in the private sector then currently it is the worker’s company that has to pay. For private sector work from April, 2020 responsibility for payment will move to the end user client or agent unless the client is a “small” organisation as defined, in which case the worker’s company remains responsible for the tax and NIC.
The Rangers case involved a different principle and held that because the tax scheme failed it was the employer companies that should have deducted tax and NIC as there had been a re-direction of taxable earnings from the employee to trustees under the tax scheme. The APNs and Follower Notices that resulted and were sent to employees result from the employee’s involvement and benefit arising from the scheme and do not involve IR35 as the recipients were employees all along. HMRC are allowed to collect the tax that should have been deducted by the employer under PAYE from the receiving employee in certain cases.
So to answer the question, the IR35 rules and the decision in the Rangers case are different types of situation and so different principles apply. Hope that is clear!
This answer is provided by Patrick Cannon. Patrick advises on and appears in civil and criminal tax disputes with HMRC, challenges to tax avoidance schemes and action against professional and other advisers who mis-sold aggressive tax avoidance schemes now subject to APNs and Follower Notices.