Who pays the tax? – the Demibourne case
A recent case has caused an alteration to PAYE regulations such that HMRC can transfer a liability from employer to employee in certain circumstances.
The Demibourne case also illustrated the problems of differentiating employment and self-employment for the purposes of tax law. As ever, what matters is not what the individual concerned believes to be the case, but whether they meet enough of the loosely drawn up criteria for self-employment. In this case, a hotel worker had started out as an employee of the hotel before returning there to work on a self-employed basis. The suspicion must arise in circumstances like these that the change of status has occurred purely to save the employer the costs of employment – chiefly employer’s NICs.
HMRC successfully obtained a ruling that the worker should be reclassified as an employee. The worker had already paid their income taxes under self-assessment. HMRC at the time did not have the discretion to accept this in lieu of PAYE tax from the employer, and so sought recovery of the latter. PAYE regulations have now been amended so that HMRC can accept a PAYE liability transferred from employer to employee, provided the employee has received a payment gross on which they have been self-assessed (i.e. paid tax either through that year’s tax return or as a payment on account).