Judgment summary
This appeal concerned two notices of requirement to give security (NORs) issued by HMRC on 12 March 2025 to Crescendo Entertainment Ltd and its sole director, Mr Ben-Israel, on a joint and several basis, totalling £186,984.78 for PAYE and NICs (1).
The Tribunal first exercised a supervisory jurisdiction to assess whether the decision to issue the notices was reasonable and proportionate, and then considered whether to confirm, vary or set the notices aside under the statutory variation provisions (13, 22-25).
The Tribunal found that the issuing officer knew at the time of issue that the appellants were impecunious and unable to satisfy the notices, and that failure to comply would amount to a strict liability criminal offence (38). It held that the decision to issue the notices was therefore disproportionate and unreasonable (53).
After the hearing, the company was compulsorily wound up on 6 May 2026 following a winding up petition presented by HMRC, and the Official Receiver confirmed it did not wish to continue the proceedings (5-6). HMRC confirmed it would not pursue the second appellant for security or prosecution (8, 20, 70).
The Tribunal concluded that, with the company no longer trading, there was no future revenue to protect, and allowed both appeals, setting aside the notices (72-74).
Background
Crescendo Entertainment Ltd was incorporated on 12 July 2021 and operated in building entertainment software (16(1)). Mr Ben-Israel, the sole director, had personally invested approximately £800,000 in the company (16(1)). The company had been registered as an employer since 10 June 2022 and had seven employees at the date the NORs were issued (16(3)).
The company made modest PAYE and NIC payments of between £3,000 and £5,000 between June 2024 and February 2025 (16(4)). On 17 January 2025, HMRC sent a security warning letter stating that security of £153,590.69 would be required if a notice were issued at that date (16(5)).
Telephone contact between the appellants' agent and HMRC in late January and February 2025 recorded that Mr Ben-Israel was struggling financially, was trying to raise cash, and was attempting to sell two properties (16(7)-(8)). HMRC made further unsuccessful attempts to contact Mr Ben-Israel (16(9)).
The NORs were issued on 12 March 2025, based on a four-month look-forward estimate of PAYE (£53,371) and NICs (£33,786), plus then-current arrears of PAYE (£58,587.18) and NICs (£41,240.60), totalling £186,984.78 (16(10)-(11)). The appellants did not pay the security and appealed, requesting a review; HMRC upheld the NORs on 6 June 2025 (16(13)-(14)).
Officer Jennifer Harrison, who issued the notices, accepted in evidence that she knew the appellants were impecunious and facing cash flow difficulties but did not consider hardship or ability to pay, understanding this not to be required by HMRC guidance (16(21), (23)).
The company's accounts for the years ended 31 July 2024 and 31 July 2025 showed operating losses of £1,324,039 and £716,727 respectively (16(34), (36)). Mr Ben-Israel's bank statements showed his account was frequently overdrawn, and he relied on loans from family and friends (16(37)).
On 7 November 2025, HMRC presented a winding up petition to the High Court, recording indebtedness of £88,457.36 (16(38)). The petition was heard on 6 May 2026, and the company was compulsorily wound up; all debts were subsequently written off (5, 16(39)).
Core dispute
The main issue concerned the nature of the Tribunal's jurisdiction over the NORs, namely whether it was supervisory, appellate, or a combination of both, and in either case whether the decision to issue the notices was reasonable and proportionate (2).
A second issue was whether the decision maker, or the Tribunal, could and should take into account hardship to the appellants and their ability to pay the required security (2).
The appellants argued that the Tribunal had full appellate jurisdiction under the variation provisions in Reg 97V(5) PAYE Regulations and para 29V(5) NIC Regulations, that hardship and ability to pay were relevant considerations which the officer failed to take into account, and that the notices should be set aside or reduced, including by excluding historic arrears from the security calculation (17).
HMRC submitted that the jurisdiction was primarily supervisory, that hardship/ability to pay was not a relevant consideration for issuing a NOR, that the officer had acted reasonably based on the information available at the time, and that existing indebtedness could properly be included in the security calculation (18).
Court findings
The Tribunal agreed that it should first exercise a supervisory jurisdiction to assess the reasonableness and proportionality of the decision to issue the notices (22, 25).
Applying principles of proportionality drawn from R (Lumsden) v Legal Services Board [2015] UKSC 41, the Tribunal held that the word "necessary" in the statutory test set a high bar, and that a notice which could not in practice be satisfied provided no real protection to the revenue, only a theoretical protection by exposing the recipient to criminal liability (41-50).
The Tribunal found that Officer Harrison knew the appellants were impecunious and unable to satisfy the notices, and knew that non-compliance would amount to a criminal offence under section 684(4A) Income Tax (Earnings and Pensions) Act 2003, yet did not consider hardship or ability to pay (38). It held that hardship/ability to pay was a relevant consideration which should have been taken into account, following D-Media Communications Ltd v HMRC [2016] UKFTT 430 and Duma v HMRC [2026] UKFTT 262 (51-52).
The Tribunal concluded that the notices went beyond what was necessary for the protection of the revenue and were disproportionate, and therefore unreasonable and procedurally flawed (53, 60).
The Tribunal rejected the submission that including existing arrears in the security calculation was impermissible, finding that outstanding indebtedness at the date of issue could reasonably be taken into account (59).
Having found the original decision flawed, the Tribunal went on to consider the variation provisions, accepting (without deciding the point as a matter of principle) that it could do so having found the decision unreasonable (62-64). It held that, following the company's liquidation and cessation of trading, there were no future PAYE or NIC liabilities against which HMRC needed protection, and that HMRC had confirmed it would not pursue the second appellant for security, meaning no pre-existing liability remained (67-71).
Outcome
The Tribunal concluded that the decision to issue the NORs was unreasonable and disproportionate under its supervisory jurisdiction, and further concluded, under the variation provisions, that the notices were not necessary for the protection of the revenue in light of the company's liquidation (72-73).
Both appellants' appeals were allowed and the notices were set aside (74).
Major issues / areas of contention
- Whether the Tribunal's jurisdiction over PAYE/NIC security notices under Reg 97V(5) PAYE Regulations 2003 and para 29V(5) NIC Regulations 2001 is supervisory, appellate, or both.
- Whether hardship and ability to pay are relevant considerations that HMRC's decision maker must take into account before issuing a notice of requirement to give security.
- Whether the decision to issue the notices was reasonable and proportionate given the officer's knowledge of the appellants' impecuniosity.
- Whether an inevitable consequence of issuing the notices, namely exposing the appellants to a strict liability criminal offence under section 684(4A) ITEPA 2003, was a relevant or irrelevant factor in the officer's decision.
- Whether existing PAYE/NIC arrears could properly be included in the calculation of security required, as distinct from prospective four-month look-forward liabilities.
- Whether, following the company's compulsory winding up and HMRC's confirmation it would not pursue the second appellant, the notices remained necessary for the protection of the revenue.