Employees who engage in tax evasion may put more money in their pockets each week – but only at the price of sacrificing their employment rights. An installation engineer found that out to his cost after accepting cash and free and discounted goods in lieu of part of his salary.
The engineer, who worked for an electrical installation business, was on the face of it paid £32,000 a year, from which Income Tax and National Insurance Contributions were deducted via the PAYE system. However, in agreement with the business’s owner, he also received many thousands of pounds in cash, together with large quantities of goods, either free or at cost price.
Following the termination of his employment, he launched Employment Tribunal (ET) proceedings claiming, amongst other things, unfair and wrongful dismissal and that unlawful deductions totalling about £51,000 had been made from his wages. His employer, however, asserted that he had been lawfully made redundant and that his dismissal would in any event have been justified by his gross misconduct.
Ruling on the matter, the ET found that the engineer and his employer had together plotted to cheat HM Revenue and Customs (HMRC) by keeping off the books the cash and goods that the engineer received. Their objective was to reduce the business’s overheads whilst at the same time increasing the engineer’s take-home pay.
The ET found that the engineer’s employment contract was either illegal or tainted by illegality in which he had knowingly and willingly participated. As a matter of public policy, he could not rely on such a contract and, having come before the ET with dirty hands, the entirety of his case was dismissed.
The ET acknowledged that the employer had benefited from the illegality both in terms of reducing its liabilities to HMRC and because the engineer’s contract was unenforceable. However, it anticipated that, in the light of its findings, HMRC were likely to take an interest in the matter.