Background
HMRC issued Tyler Security Limited with a determination under regulation 80 of the Income Tax (Pay As You Earn) Regulations 2003 concerning specialist dog handlers supplied to Tyler’s clients during the 2017–18 tax year. The assessment was initially £133,615.60 and was reduced on review to £88,503.70. HMRC maintained that sections 44–47 of the Income Tax (Earnings and Pensions) Act 2003 applied, requiring Tyler to account for PAYE as the relevant agency.
The First-tier Tribunal dismissed Tyler’s appeal, holding that the handlers personally provided services, were subject to supervision, direction or control, and fell within the agency legislation. After both the First-tier Tribunal and, initially, the Upper Tribunal refused permission to appeal, Tyler obtained an oral reconsideration of its renewed application.
The Court’s Holding
The Upper Tribunal refused permission on every ground originally advanced. It found no arguable error in the First-tier Tribunal’s conclusions that the handlers personally performed services with their dogs and were subject to supervision, direction or control through operating procedures, client protocols, tasking instructions, and oversight. The handlers’ self-employed or VAT-registered status did not prevent section 44 from applying.
The Tribunal nevertheless granted permission on one narrow ground arising from its concern about the tax treatment of the handlers’ substantial dog-related costs. It held that there was a realistic prospect of arguing that, if those costs were not deductible under the employment-expense rules, this might support a narrower interpretation of “personally provides services” in section 44(1)(a), potentially excluding arrangements containing a material cost or non-labour element. Permission was confined to that interpretive issue and did not extend to Tyler’s VAT, supervision-and-control, best-judgment, quantum, or double-taxation arguments.
Key Takeaways
- Permission to appeal was granted only on whether the expense consequences of section 44 may justify construing “personally provides services” more narrowly.
- A worker’s self-employed status, VAT registration, and use of specialised equipment do not by themselves prevent the agency legislation from applying.
- A challenge to HMRC’s “best judgment” must be clearly pleaded; Tyler could not introduce an unparticularised challenge at the hearing.
Why It Matters
The appeal may clarify whether the agency-worker rules extend without qualification to arrangements in which an individual supplies not merely labour but also a costly operational asset, such as a trained detection dog. The answer could affect contractors whose business expenses may not be deductible once their remuneration is deemed employment income.
The decision is only a permission ruling, not a final determination that section 44 was wrongly applied. For now, the First-tier Tribunal’s decision remains under challenge solely on the narrow ground permitted by the Upper Tribunal.