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Paying Tax Twice

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The heading makes this case sound boring, but it is important.

This case is authority for the proposition that HM Revenue and Customs is entitled to charge an employer full tax and NI under the PAYE regulations, where the parties have wrongly viewed the employee as self-employed, without giving credit for the tax and national insurance already paid directly by the 'employee'.

Mr Bone and his employer genuine believed he was self-employed. For some ten years, he sent invoices and was paid gross. He completed annual accounts and paid his own tax.

The Inland Revenue (as it was then called) then decided that he was employee rather than self-employed, an assessment with which the Special Commissioner agreed. Following a failure by the employer to agree back-tax, the Revenue levied a tax determination for the full amount of tax, without giving credit for the tax which the individual had been paying each year.

The Special Commissioner upheld this approach. He suggested that the Revenue negotiate an appropriate settlement to give credit for the tax already paid, but he had no power to order such credit.

The effect of this decision is that the Revenue can recover tax twice in a situation where an individual has been paying tax (wrongly) as a self-employed person. Often the individual will be able to recover his own payments of tax in subsequent years; however (as here), sometimes the payments date back too far and the employee will have lost the right to claim back previous overpayments.

Demibourne Ltd v HM Revenue & Customs