Scheming PAYE and NIC

The appellant company appealed against HMRC requests for unpaid tax on employee earnings for the years 2004/05 2005/06 and 2006/07 under PAYE Regulations 2003 regulation 80 and Social Security Contributions (Transfer of Functions etc) Act 1999 s 8.

The issue concerned whether sums received by the employees in question were earnings of their employment or payments of dividends to those employers as shareholders.

The company’s staff signed a terms of agreement as part of ‘the Backhouse organisation’ scheme which included committing to a reduction in wages in return for a share of the company dividends as well as other company benefits.

A further agreement –  the ‘profit share agreement’ – which was made in 2004 with another company Embenplan involved a service constructed for the purpose of providing an administration of wages...