Judgment summary
This appeal concerned assessments totalling £23,904.36 issued by HMRC under paragraph 9 of Schedule 16 Finance Act 2020, relating to Coronavirus Job Retention Scheme (CJRS) payments claimed by L W Joinery & Flooring Limited for accounting periods ending 31 January 2021 and 31 January 2022 (1).
The sole issue was the amount of the reference salary of Mr Lance Williams, the Company's sole director and employee, in the latest salary period ending on or before 19 March 2020: whether it was £512 or £2,996 (5).
The Tribunal heard evidence from Mr Williams and from Mr Richard Hebbes of HMRC, and considered RTI records, payslips, bank statements and national insurance data, none of which fully reconciled (10, 36).
The Tribunal dismissed the appeal, concluding that the Company had not established on the balance of probabilities that the salary increase to £2,996 had taken effect before the relevant date (8, 57).
Background
The CJRS was established under the Coronavirus Direction dated 15 April 2020, made under sections 71 and 76 Coronavirus Act 2020, to reimburse employers for the cost of furloughed employees' wages, calculated by reference to the employee's 'reference salary' (2, 14-16).
For a fixed rate employee, the reference salary is the amount payable in the latest salary period ending on or before 19 March 2020 (paragraph 7.7 of the Coronavirus Direction) (25).
It was not disputed that the Company was eligible for CJRS payments or that Mr Williams was a fixed rate employee; only the amount of his reference salary was in dispute (3). No argument was raised that the assessments were invalidly made (4).
Both parties agreed that up to and including January 2020, Mr Williams was paid £512 a month, plus varying additional amounts by way of director's loan repayments (32). The Company claimed CJRS using a monthly reference salary of £2,996, saying Mr Williams' salary increased from February 2020, with the first increased payment on 7 February 2020, in order to allow him to remortgage with Northern Rock (31, 33).
The Company's accountant, Mr Mitchell, filed RTI information on behalf of the Company, acting initially as a 'file-only' agent; the RTI submission due in March 2020 was delayed until 2 May 2020 while he obtained authorisation to make CJRS filings (34).
Core dispute
The dispute centred on whether, on the balance of probabilities, the amount payable to Mr Williams in the latest salary period ending on or before 19 March 2020 was £512 (as shown in HMRC's records) or £2,996 (as claimed by the Company) (5).
HMRC relied principally on the RTI submission made on 5 March 2020, which recorded a salary of £512 and year-to-date pay of £5,632, consistent with no increase having taken effect (37-38). The Company relied on witness evidence from Mr Williams, a bank statement showing a payment of £2,245 on 7 February 2020, payslips for February to April 2020, and the RTI submission filed on 2 May 2020 showing total pay for the year of £11,112 (33, 39, 41-42).
The Company also raised arguments concerning legitimate expectation arising from HMRC's acceptance of the CJRS claims, and alleged breaches of HMRC's duty of candour during the compliance check and ADR process, though it did not seek a specific remedy for these (60).
Court findings
The Tribunal found that the Company bore the burden of showing, on the balance of probabilities, that HMRC's assessments were excessive (5). It held that the contemporaneous RTI submission of 5 March 2020 was the strongest evidence of what salary was regarded as payable at that time, and the Company had not provided a satisfactory explanation for the discrepancy between that submission and its case (50).
The Tribunal was satisfied that the 5 March 2020 RTI record was genuine, with no evidential basis to find it fabricated, altered or lacking integrity, despite Mr Mitchell's evidence that the data did not come from him (38, 40, 52). It attached greater weight to the 5 March 2020 RTI submission than the 2 May 2020 submission, as the latter was made after the CJRS was announced and after the relevant date (52).
The Tribunal found that the February payslip (showing £512 paid on 5 February 2020) and the bank payment of £2,245 on 7 February 2020 did not reconcile, and there was insufficient contemporaneous evidence linking that bank payment to an increased salary rather than to Mr Williams' director's loan repayments (54-55). It found the payslips' reliability doubtful because they did not reconcile with the bank records or Mr Williams' own account (55).
It did not find that Mr Williams or Mr Mitchell had acted dishonestly, but found they could not satisfactorily explain the discrepancies between their recollection and the contemporaneous documentary record, and gave greater weight to contemporaneous documents than to witness recollection of events more than six years old (53).
The Tribunal declined to admit Mr Williams' self-assessment tax return, as it had not been disclosed before the hearing, and did not take HMRC's submissions about its contents into account (47).
On legitimate expectation, the Tribunal noted the Upper Tribunal decision in Queenscourt Limited v HMRC ([2026] UKUT 00195), which indicated that KSM Henryk Zeman v HMRC ([2021] UKUT 189 (TCC)) had been wrongly decided, but did not need to resolve the jurisdictional question, because even if it had jurisdiction, mere payment of a CJRS claim following an automated or administrative process during a pandemic was not a clear and unambiguous representation sufficient to create a legitimate expectation (63-64).
Outcome
The Tribunal found as a fact that the Company had not established, on the balance of probabilities, that Mr Williams' salary in the latest salary period ending on or before 19 March 2020 was £2,996 (57). It followed that the relevant reference salary was £512 and that the CJRS claims had been overstated (58).
The appeal was dismissed (8, 59, 65).
Major issues / areas of contention
- Whether the Company's sole employee's reference salary for CJRS purposes was £512 or £2,996 in the latest salary period ending on or before 19 March 2020.
- Whether the contemporaneous RTI submission of 5 March 2020 was reliable evidence of the salary paid at that time.
- Whether the bank payment of £2,245 on 7 February 2020 and payslips for February to April 2020 supported the claimed salary increase.
- Whether HMRC's acceptance and payment of the CJRS claims gave rise to a legitimate expectation that the Company was entitled to retain the payments.
- Whether HMRC's conduct, including issuing and later withdrawing an invalid information notice and penalty, affected the validity of the assessments.
- Whether the Tribunal had jurisdiction to consider legitimate expectation and duty of candour arguments, in light of Queenscourt Limited v HMRC doubting KSM Henryk Zeman v HMRC.