In Stephen White, Gary Laws & Others v HMRC [2025] EWHC 1600, the High Court (HC) found that HMRC were right to exercise 'the 7A power', removing the requirement for the 'end user' in a disguised remuneration scheme to comply with PAYE Regulations.
Stephen White (SW) and Gary Laws (GL), both IT consultants, used disguised remuneration schemes to provide their services to an 'end user'.
- SW, GW and 46 other claimants had used either the 'AML' scheme or the 'Edge' scheme, both well-known disguised remuneration schemes.
- The contractors were employed through an offshore company, which paid a modest salary directly to the contractors; the remaining balance was contributed to an Employee Benefit Trust (EBT). The EBT then lent the money back to the contractors, avoiding paying Income Tax and NIC.
- The outcomes in RFC 2012 Plc (in liquidation) (formerly The Rangers Football Club Plc) v Advocate General for Scotland [2017] UKSC 45 and Stephen Hoey v HMRC [2021] UT 0082 were relied upon to determine if Income Tax and NIC were due.
- HMRC deemed the structure used by the claimants to be similar to that used in the Hoey case and issued decision notices to that effect.
- There was no right to appeal in the decision notices; however, representations were made by the claimants.
S.689 ITEPA 2003 deals with the situation where the entity paying the remuneration is based offshore and cannot be held liable for PAYE tax. In this scenario:
- The end user based in the UK will become liable to pay the tax under the PAYE Regulations.
- The employee is then entitled to treat the PAYE tax as having been paid and claim a credit against their own tax liability.
However, s.684(7A)(b), often referred to as 'the 7A power', allows an HMRC officer to remove the requirement of the end user to comply with the PAYE Regulations where the officer is satisfied that it would be 'unnecessary or not appropriate' for the end user to do so.
SW and GL contended that 'the 7A power' should not have been exercised without HMRC first investigating their circumstances further, which included:
- Looking into the claimants' personal circumstances, including how paying the liability so long after the event would affect the claimants financially.
- Requesting representations before issuing the decision notices.
- Investigations into the end users.
- Whether the offshore employer had a 'UK presence'.
The High Court found:
- HMRC were not obliged to enquire into the claimant's personal circumstances.
- Whether the claimants would find it easy to pay the liability was of no relevance to HMRC's decision-making.
- The claimants submitted tax returns failing to declare the majority of their income, which would have been undertaken on the bad advice of others. However, bad advice does not remove an individual's requirement to pay tax; it particularly does not make it appropriate for a third party to pay it.
- There was no requirement to investigate the end user:
- Schemes are often structured in a manner that conceals the offshore employer from the end user.
- Had the end users been aware that they were a 'relevant person' for the purpose of s.689, they would have likely acknowledged this to HMRC and met their PAYE requirements.
- There was no suggestion that Edge or AML had a trading presence in the UK, which is sufficient to establish that the PAYE Regulations did not apply to them.
- It was not unlawful for HMRC to issue decision notices before seeking representations.
- HMRC were entitled to take the view that all claimants were liable to pay Income Tax and NI.
Permission to apply for Judicial Review was rejected.
Useful guides on this topic
Disguised remuneration loan charge (subscriber guide)
What is disguised remuneration? What is the loan charge? When does the loan charge apply? Will the loan charge affect me?
FAQs for Disguised Remuneration Settlements
Can I just repay my loans? Which is cheaper: the loan charge or settling? How much will it cost to settle? And many other FAQs.
EBT Schemes: Where are we now?
What is the current position with EBT schemes? How does the loan charge apply? What are the current settlement options?
Loan charge and disguised remuneration? Start here...
When do the disguised remuneration rules apply? How do they apply? When does the loan charge apply? What options for settlement are available?
Loan Charge Review: At a glance (Terms of Reference)
The Exchequer Secretary to the Treasury, James Murray, has announced an independent review of the loan charge to bring matters to a close for taxpayers affected by the legislation. What will the terms of the review be? When can we expect an outcome? What should affected taxpayers do now?
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