Terms & Conditions

[tracycox]

We have a customer who has recently been declared bankrupt – she no longer pays tax through her wages but instead pays a regular amount to the insolvency service.
This is the same amount as the tax deductions were.
Would we deduct this amount from her earnings when doing the benefit calculation or do we ignore it.

[Anonymous]

Tracy
I think I would argue that they are still payments of Income Tax and National Insurance, just that they are not being paid direct to the collection agencies.
Reg 36 (2) says that we should ignore any payments of Income Tax and National Insurance, but it doesn’t mention who those payments are to, so, if you are happy that they are payments for that purpose, and that would seem to be the case from your post, then ignore them in the same way as you “normally” would. 8)

[petedavies]

Have to disagree with Jon on this,

Reg 36 provides for earnings to be calculated disregarding:

(a) any amount [u:273b3bad4d]deducted[/u:273b3bad4d] from those earnings by way of–
(i) income tax;
(ii) primary Class 1 contributions under the Act;

I do not think that the payments can fall to be considered as deduction.

I suspect that this is an error in the drafting of the Regs but I do not think it leaves any real room to manouvere.

[Anonymous]

Pete
The argument hinges on the words “by way of”.
Could it not be argued that a deduction from income for these purposes is by way of irrespective of who makes the deduction.

For example, in the construction industry, many people work as self-emploed but for one person (as a sub-contractor legally).
It is not uncommon for the employer to hold back part of the payment for work towards the Tax and NI conntributions, which are then settled at year end. Are these not deductions “by way of” tax and NI, in the fact that they are accepted by the Revenue towards payments of Tax and NI, even though they are not deducting the payments themselves, as with an employed earner? :15: 8)
In doing this I am interpreting the phrase “by way of” to mean “for the purpose of” which, unless you know of any relevant caselaw (and I haven’t looked that hard), seems to me to be a workable interpretation.

[petedavies]

Jon,

I have no dispute that the payments are “by way of” and agree with your definition – my concern is the word deduction. If my understanding is correct, the claimant receives full gross wages and then makes payment to the Insolvency Service.

If this is correct they are not deductions but payments made after receipt. Just to be pedantic, if the claimant’s earnings were paid to the I.S. who then made deductions and passed the balance back to the claimant I think there would be an arguable, but by no means watertight, case that the Tax and N.I. could be disregarded.

I think (hope!?) this is contrary to the intention of the Regs but cannot see how they can fall to be disregarded.

Must admit, I know its difficult to contemplate it ever happening but I think this may be a case of the Regs being poorly worded.

To give what I think we agree is the appropriate result would require wording along the lines of …any deductions… or, where no such deductions are being made, payments made in place of those deductions.

[Author]

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