In FieldworkHub Ltd v HMRC [2025] TC09634, the First Tier Tribunal (FTT) found that the employer was not legally obliged to include 'previous pay' in their payroll calculations in the absence of a P45.
FieldworkHub Ltd (FH Ltd) appealed against a Determination issued by HMRC regarding a failure to deduct Pay As You Earn (PAYE) tax from an employee's earnings for the 2021-22 tax year.
- FH Ltd was a Real-Time Information (RTI) employer, with four employees and two directors.
- FH Ltd's payroll was managed by an accountancy firm.
- When the employee in question joined FH Ltd on 4 January 2021, she indicated on her Starter form that she had another job.
- HMRC issued a D0 tax code notice (40% tax, no personal allowance) effective from 6 April 2021, reissuing it on 22 June 2021.
- She left her previous employer on 31 December 2021.
- On 13 March 2022, after receiving information from the employee's other employer, HMRC issued a new tax code (887T), stating the employee had earlier pay of £42,385 and £8,069.36 tax deducted.
- In April 2022, FH Ltd changed payroll providers, and the new accountants used a different electronic payroll system.
- The employee then left FH Ltd on 31 August 2022.
- On 6 June 2023, HMRC wrote to FH Ltd, stating that the previous employment pay and tax figures from the March 2022 coding notice had not been used in payroll calculations. HMRC requested a Full Payment Submission (FPS) for £8,888.24, an amendment to form P35, or an explanation of how FH Ltd had taken reasonable care to operate PAYE.
- On 10 August 2023, FH Ltd's director replied:
- Confirming they had not received a P45 from the employee for her previous employment.
- They were unaware of the underpayment until HMRC's 2023 letter, after the employee had left.
- They requested that HMRC recover the underpaid PAYE directly from the employee.
- On 26 October 2023, HMRC issued a 'Notice of Regulation 80 Determination' stating that they believed the £8,888.24 was due from FH Ltd as the employer.
- FH Ltd appealed the Notice.
- HMRC offered a review, which FH Ltd agreed to after taking professional advice.
- FH Ltd asked HMRC to consider the case Sci-Temps Limited v HMRC [2020], which found no legal obligation on the employer to include 'previous pay' figures unless a P45 is provided or, if not, the figures should be reflected in the first tax code notice from HMRC.
- FH Ltd argued that because they did not have a P45 and details of previous pay and tax were only included in the third tax code notice for the tax year, HMRC had not followed the correct process.
- FH Ltd believed they had taken reasonable care and would have expected any necessary adjustments to be included in the tax code, not as unexplained figures at the end of a coding notice.
- HMRC distinguished the Sci-Temps case, arguing that in that case, the pay and tax related to a previous tax year, whereas FH Ltd knew the employee was still working for her previous employer during 2021-22.
- HMRC also claimed that the 887T code issued in March 2022 was the first code for the 2021-22 tax year following a change to the employee's circumstances.
The appeal was sent to the tribunal on 25 October 2024.
First Tier Tribunal (FTT) findings:
- The FTT agreed with the findings in the Sci-Temps case that employers must use the tax code provided by HMRC, and previous pay and tax details are not part of the tax code.
- The FTT disagreed with HMRC's argument that the 887T code was the first code issued following a change in circumstances, agreeing with FH Ltd that this was the third tax code for 2021-22.
- There was no explanation of the previous pay and tax figures and earlier tax codes did not include these figures.
- FH Ltd used the tax codes issued by HMRC and therefore complied with the Regulations.
- The FTT confirmed there is no legal obligation on an employer to include previous pay in their payroll calculations unless the figure comes from a P45 or is provided with the first tax code.
- The FTT concluded that there was no failure to comply with the Regulations and no basis for the Determination.
The Determination was reduced to nil and the appeal was allowed.
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HMRC use wrong legislation for PAYE determination
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