Employment Income: Scope

25

system does not apply, eg in the case of a non-resident employer, the employee must use the self-assessment system. In view of its effectiveness PAYE has been expanded in various ways. It also provides ample encouragement to the Revenue to argue that a contract is one of employment and do within the PAYE system and not self-employment.

13A.4.1.1    Construction—Narrow but Commercial Approach

In IRC v Herd¹⁵⁸ the House of Lords held that the PAYE regulations should not apply unless there was a clear direction that they should. The Revenue argued for the narrow construction, while the employee argued for a wide construction so that the burden would fall on the employer and not on himself. The charge had arisen under what became TA 1988, section 138 (later repealed) on the unrealised gain on shares acquired as an employee. A specific provision now applies the PAYE rules to certain benefits from share options, etc, but did not then.¹⁵⁹ Lord Mackay said that the Schedule E charge was not on the amount paid