PAYE required to be paid by employee
Decision date: 15 November 2005
Case: Decision No: 17/05
Act(s): Income Tax Act 1994
Keywords: PAYE, not deducted, employee, independent contractor
Summary
The TRA held that an employee was liable for PAYE not deducted or paid by his employer.
Facts
The disputant was engaged by his employer company as its Chief Executive Officer. His letter of offer (8 June 2000) purported to offer the position as either an employee or as an independent contractor-the choice was left to the disputant. No election was made by the disputant at that time.
The disputant maintained that a detailed employment contract was signed on 9 June 2000. The Commissioner contended that it was not in fact signed until a date in October or November 2000.
From the beginning of the disputant's employment, the disputant instructed the PAYE staff not to deduct PAYE from his remuneration, and that continued to be the case up until the 31 October 2000 period, during which the accounts staff were made redundant upon the insolvency of the employer. A receiver was appointed on 25 October 2000. The disputant then assumed direct responsibility for PAYE matters, and failed to deduct it from his wages.
The disputant contacted Inland Revenue in October and November 2000, explaining that he had been omitted from the employer's PAYE schedules as it had not been ascertained whether he was an employee or an independent contractor.
The disputant completed employer monthly schedule adjustments for the months in question on about 7 November 2000, but did not file them straight away as the employer was on the EMS system. The schedules were dated 24 October 2000, and were in the name of the payroll clerk, who had ceased employment on 15 September 2000.
The amended schedules were filed electronically on 15 December 2000.
Decision
His Honour Judge Barber began his judgment by setting out the facts as he found them, as there were several points in contention between the parties. As regards the employment contract, His Honour found that it could not have been completed when the disputant alleged, and must have been completed at some point in October 2000. However, His Honour also held (and the parties themselves agreed during the hearing) that the disputant was at all times an employee, and "any effort to restructure it in some other form was ineffective and an illegal effort to assign income". The disputant was, at law, always an employee.
Although the disputant argued that the salary he received was net of PAYE, Barber J held otherwise. PAYE had not been deducted and retained by the employer, nor passed on to the Commissioner. He noted: "The efforts of the disputant to reconstruct matters to show otherwise have been valiant, but are unsuccessful before me."
As the disputant was an employee, and PAYE had not been deducted from payments made to him, NC 16 applied. The relevant parts of section NC 16(1) provide:
"Where for any reason a tax deduction … is not made or is not made in full at the time of the making of any source deduction payment or payments, the employee must …" both furnish an employer monthly schedule and pay such deductions at prescribed times.
The disputant, as CEO, was aware of the financial difficulties his employer company was experiencing, and knew that it did not have the means to pay outstanding PAYE or further PAYE added to the schedules by and in respect of the disputant. Thus, "[t]he retrospective reconstruction by the disputant was made without authority from the directors of the employer company, or its Receiver." The disputant was also aware of the omission of PAYE from his salary at all material times.
His Honour concluded:
"In the circumstances of this case, it is fair and just that the said PAYE amounts, which were not deducted by the employer due to the scheming of the disputant, now be assessed to him pursuant to the defendant's power to do that under s NC16 of the Act."
Date published: 10 Oct 2006
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