Each of the two claimants made applications to the Redundancy Payments Service (RPS), in its capacity as the statutory guarantor for employment debts, in respect of debts which they said were owed to them by the respondent. Both of those applications were unsuccessful, in respect of notice pay and in respect of redundancy pay. Both claimants appealed those decisions. Since the first respondent has been the subject of a winding up order the main hearing was held only in respect of the relevant claimant’s appeals against the relevant RPS decisions. 

The company was not making any payments to HMRC in respect of either of the two claimants’ wages, which was a blatant breach of the income tax legislation. It was held that the claimant was well aware at all relevant times that the respondent was not making deductions as required by law under the PAYE system. 

In situations in which an employee knows that his employer is not properly deducting tax from his wages, the employee is nevertheless entitled to pursue a claim unless the contract of employment is vitiated by reason of illegality. In the specific context of PAYE under-deductions, only illegality as to performance is relevant. In the absence of evidence that either employee ‘participated’ in the illegal performance of the contract, the Tribunal held that it had no power to decline to enforce it. However, it nevertheless held that the claimants could not get away with relying upon the statutory guarantee without having to pay their fair share of taxes. 


Practical Lessons

The tribunal clearly indicated that the effect of the ‘Income Tax (PAYE) Regulations 2003’ is that HMRC can make employees liable for the amount of any under-deduction. Whilst, technically, the Department was required to pay the respective sums of money in this case, the Tribunal signalled that the HMRC were entitled to be informed of the findings of the Tribunal in order to make the employees liable for the amount of the under-deduction. 

As ever, full case decisions for NI cases are available on the OITFET website:
http://www.employmenttribunalsni.co.uk/