Employer Liable After Agent Uses Wrong PAYE Number

October 27, 20220

In a sharp wake-up call for those who outsource payroll processing, an employer was held responsible when payrolls processed by an agent continued under the old PAYE reference after a business transfer.

The recent case of Sumangkaly Siva v HMRC TC8600 in the first tier tribunal highlights the importance of using the correct PAYE reference number in Real Time Information (RTI) returns.

Sumangkaly Siva operated a business with payroll processed through an agent. In February 2018, her business was transferred to a new owner. HMRC refer to this as a business succession, which means that one PAYE reference number ceases and employees are transferred to a new PAYE reference number belonging to the new owner.

The agent administered the payrolls for both parties, Siva and the new business owner. However, the agent continued processing the payrolls under the old PAYE reference number until 5 December 2019. A new PAYE reference number was received on this date, from which time RTI submissions were made under the new reference, including one backdated to July that year. The agent claimed that they had not received the new PAYE reference “in time”. So, essentially, for over one and a half years, the agent had been submitting RTI returns under a PAYE reference number they knew would not be correct, presumably with the intention of ensuring employees were paid.

Understandable But Not Excusable

It is, perhaps, understandable Siva did not pay the PAYE liabilities for the period February 2018 to 5 December 2019. After all, she did not own the business. However, it is also understandable that HMRC pursued Siva for the monies, as the RTI submissions were made under her reference number and their systems showed they were outstanding and had issued penalty notices. Siva appealed against HMRC’s request for liabilities and penalties, while HMRC maintained she had no grounds to appeal. The legislation is worded so that the employer making the submissions, albeit through an agent, automatically has the payment obligation. HMRC won their case – Siva had no grounds to appeal.

The ruling indicates that Siva remains responsible for the liabilities “unless and until” the agent amends the RTI submissions. Although, this is something they claim to have done and assured Siva on a number of occasions that they had “fixed it on the computer”.

Lesson For Employers

In the first instance, regardless of whether the payroll is outsourced to an agent, it is the employer who is ultimately responsible. Therefore, no agent/bureau/bookkeeper can truly say that they are relieving the employer of all their payroll obligations.

An employer does need to be aware of what a payroll processor is doing on their behalf. Salary Management Services Provider Siva was assured by her agent things were corrected and, indeed, maybe that is what the agent believed, though HMRC were unable to see attempts at correcting the situation by amending RTI submissions.

Another lesson for employers is to ensure they have in place a tight service level agreement (SLA). An employer that outsources their payroll expects this to be processed compliantly and, where it is not, the SLA should allow the possibility of redress.

This does come back to the first point, namely, there is no such thing as an employer totally divorcing themselves of all payroll obligations.

Lessons For All

As well as highlighting there is no such thing as an employer totally divorcing themselves from all payroll obligations and the need to have in place a very good SLA that absolves them from any debt as a result of their agent’s non-compliance, the case also highlights the all-too-common issue of businesses that cease, merge or acquire.

A closure/cessation is, generally, one that ceases to be an employer and all employees are issued P45s. With Siva’s business, however, the business itself did not close, merely her position as the employer. This meant HMRC Forms deemed this a business succession where the new owner assumed liabilities under a new PAYE reference. This would have resulted in the transfer of records to the new reference, effectively performing the starter and leaver process but without the need for employees to be issued with a P45. As we know, for one reason or another, this was not handled correctly by the agent.

A merger would be the case where businesses are brought together, perhaps as a result of acquiring another business and bringing employees onto the payroll. The nature of the merger defines the need for the issue of a new PAYE reference number, for example, the merge of a weekly payroll into a monthly one under the same PAYE reference just requires the transfer of employee records from one payroll to another.

Cessations, successions, mergers and acquisitions are not the same thing and HMRC produce guidance for employers on the difference. It is important to contact HMRC using their helpline to determine how they view the business change, whether a new PAYE reference is required and how to process employees on the payroll.


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