Invalid reasons for decision not to exercise discretion

UBS obtained permission to bring a judicial review in relation to HMRC’s decision not to exercise its discretion under ITEPA 2003 s 684(7A)(b) to relieve UBS of its obligation – as employer - to deduct PAYE from payments made to a former employee. Broadly the employee’s remuneration involved gilt option agreements intended to reflect his team’s performance. These constituted ‘notional payments’ under Income Tax (PAYE) Regulations 2003 reg 62 which obliged UBS to deduct tax from them. However in this case the taxpayer had left the employer some time before the options were exercised as a result of which UBS was obliged to ‘account [to HMRC] for any amount which the employer is unable to deduct’ (reg 62(5)). Under ITEPA 2003 s 684(7A)(b) HMRC has discretion to relieve the employer from this obligation.

HMRC decided not to do this on the grounds...