In Binoy Joseph v HMRC [2025] TC09424, the First Tier Tribunal (FTT) found that a Schedule 36 Information Notice, issued to an individual who HMRC had ‘reason to suspect’ was using a disguised remuneration scheme, was lawfully issued.
Binoy Joseph was employed by Alpha Republic Ltd (ARL), a company that HMRC believed to be a promoter of a Disguised remuneration tax avoidance scheme.
- HMRC understood the scheme worked by paying:
- A salary equivalent to the National Minimum Wage, PAYE and National Insurance (NI) were deducted from this where required.
- A further component was referred to as ‘commission to be paid under the commission plan’. No PAYE or NI deductions were made from the ‘commission’ payments.
- An informal notice to request information about the payments was issued, but as Mr Joseph had no requirement to submit a tax return for the year in question, he had no statutory obligation to acknowledge the request.
- Following no response, HMRC issued a formal Schedule 36 Information Notice for the 2020-21 tax year to determine if any commission or ‘loan type’ payments had been made by ARL to Mr Joseph.
- Mr Joseph Appealed to the First Tier Tribunal (FTT) on the grounds that:
- HMRC’s belief that ARL was operating a tax avoidance scheme was purely speculative.
- Speculation on ARL was not a sufficient reason to request information from Mr Joseph.
- ARL received counsel's opinion that the arrangements were compliant.
- HMRC had not provided Mr Joseph with any ‘reason to suspect’.
- Despite the arrangement being listed under the Disclosure of Tax Avoidance Schemes (DOTAS), this did not entitle HMRC to suspect.
- The PAYE due was the responsibility of ARL and not Mr Joseph.
The FTT found that:
- The issue of the notice was not too speculative: the legislation grants HMRC broad powers to assess the tax position of an individual.
- Most items of information HMRC had requested in the notice were ‘reasonably required’; each case must be considered in its own context.
- It was reasonable for HMRC to wish to check an individual’s earnings if they have reason to suspect tax has not been paid on those earnings.
Regarding the argument that the PAYE was the responsibility of ARL and not Mr Joseph, the FTT referred to PAYE Regulations 72 and 81 which permit the transfer of liability from the employer to the employee.
Regulation 72 has two conditions:
- The employer took reasonable care to comply with the regulations and the failure to deduct PAYE was an error made in good faith.
- HMRC believes the employee received payments knowing that the employer failed to deduct the correct amount of tax.
The FTT was provided with no evidence to suggest either condition was met.
Regulation 82 also has two conditions: a) being relatively similar to Regulation 72, and b) relating to notional payments. Again, the FTT found no evidence to suggest either was met in this case.
The FTT:
- Rejected HMRC’s argument that Mr Joseph was liable for the PAYE should it transpire a liability was due.
- Agreed that HMRC had lawfully issued the Schedule 36 notice. Mr Joseph was granted 45 days to comply, albeit some amendments were made to the information required.
Useful guides on this topic
Schedule 36 information notices
What is a Schedule 36 Information Notice? When can HMRC issue one? What rights does the taxpayer have when an information notice is issued? What penalties apply for a failure to respond to an Information Notice?
Recovery of PAYE: regulation 81 and 72 assessments for PAYE
When can HMRC assess an employer or an employee for unpaid Pay-As-You-Earn (PAYE) and National Insurance Contributions (NICs)? What is a Regulation 80 determination? What is a Regulation 72 determination? Who is assessed and what are the conditions?
Disguised remuneration
This zone is all about the 'Disguised Remuneration' Loan Charge. It explains how to settle up with HMRC in respect of any pay that has been disguised as loans 'disguised remuneration' and includes contractor loans and Employee Benefit Trust loans.
DOTAS: Disclosure of tax avoidance schemes
What are the Disclosure of Tax Avoidance Schemes (DOTAS) rules? When should you disclose your use of a tax avoidance scheme? What are the consequences of non-disclosure? How are penalties calculated?
POTAS: Promoters of tax avoidance schemes
Who is a Promoter? What are the Promoters of Tax Avoidance Scheme rules? What does this mean for promoters, intermediaries and clients?
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