More developments in the world of employment taxes have recently come to light in another current case.
The relevant circumstances in this one (McCarthy v McCarthy & Stone) were that the taxpayer was a Director of the company for a number of years. Whilst he was employed by the company he held a number of share options under an unapproved scheme.
After the Director had left the company, he exercised his share options. This crystallised a PAYE charge of almost £200,000, which the company duly paid to HMRC. The employer then asked the taxpayer for reimbursement of this amount. The employee refused to comply with this request on the basis that he had no obligation to do so, whether contractual or otherwise.
The company made a summary judgment application to recover the PAYE liabilities on the basis that either:
- The ex-employee had an express or implied contractual obligation to reimburse the company; and/or
- that the company had a restitutionary right to recover the amount of the PAYE liability from the ex-employee.
In order to secure summary judgment, the company had to show that:
(a) The ex-employee had no reasonable prospect of defending the case successfully; and
(b) that there was no compelling reason why the case should be disposed of at a full trial.
Given these tests, the Judge presiding was unable to decide whether or not there was an express or implied contractual obligation to reimburse the PAYE liabilities to the company. However, he did decide that the company had a restitutionary (or a ‘quasi contractual’ – as referred to in the judgment) right to recover the PAYE liabilities.
This case does therefore now give employers a recognised non-statutory restitutionary right to recover amounts paid under the PAYE system from ex-employees. The condition which employers will have most difficulty in showing though is that they have complied with their statutory obligations, yet have been unable to recover the PAYE from the ex-employee.
What this means is that although the decision may be viewed positively by employers, there remains the need to ensure that there is appropriate contractual recourse against employees where a PAYE liability is known to exist.
This page was last updated on Friday, January 04, 2008.
