The following are the latest tribunal decisions related to late filing. The circumstances are often quite similar, but the decisions vary. They should therefore be treated with caution when advising clients.
Global Legalisation Services Ltd appealed against a penalty for late submission of the 2009-10 end of year return of payments due under PAYE (P35). The issues were: whether the company had delivered form P35 on time, whether it believed it had and whether the penalty of £800 was disproportionate.
The company registered as an employer in March 2010, so the P35 covered only one month. The company’s agent submitted the P35 in April 2010, along with many others and received the message: Successful receipt of online submission. The agent believed that it had been a successful submission, but in September 2010 HM Revenue & Customs (HMRC) issued a penalty notification for failure to submit the P35, charging a penalty of £400. The agent appealed and included a copy of the ‘successful receipt’ email. In January HMRC issued a further penalty of £400. The agents asserted that they had definitely not filed in test mode, as claimed by HMRC, noting that they were very experienced in online filing and did not need to use the test mode.
Anne Redston, the presiding member, weighed the conflicting evidence and decided that the agent definitely believed that the return had been filed and, either they had a reasonable excuse or there was no penalty due. The burden of proof lay with HMRC. The penalty was therefore set aside.
Hector McDonald v HMRC is an interesting case because the tribunal judge, Geraint Jones QC, set out the arguments as to where the onus of proof lies. McDonald asserted that his end-of-year PAYE return, P35, was filed on time. HMRC contended that it was not filed on time. As there was an issue of fact as to whether the filing did or did not take place by 19 May 2010 and as the respondent sought to impose a penalty on the appellant, the respondent bore the onus of proving the alleged default. If it is for HMRC to prove that the penalty or surcharge is justified, then it follows that it must first prove the relevant default, which is the trigger for such a penalty or surcharge to be levied.
In this appeal HMRC had not seen fit to adduce any evidence to demonstrate that the required filing did not take place on or before 19 May 2010. It is clear that HMRC sought to rely on its recording system, whereas the agent had electronic confirmation of receipt and knew of other cases where similar problems had arisen.
The appeal was allowed in full.
Sarah Cornes v HMRC is an unusual case. The appellant is a salaried partner in a firm of solicitors; she has taken a 50% pay cut in the last two years as a result of the recession. Her husband, an alcoholic, lost his livelihood three times over the past three years. The couple had debts of approximately £85,000 which were being managed under a debt management plan and they finally separated in April 2011.
The appellant made all efforts possible to manage the separation, look after her two children, working full-time and controlling debt. She had so much to cope with that she was unable to manage the paperwork coming in and was late paying tax for the year 2009-10.
HMRC stated that hardship or distress is not a consideration that they can take into account; any such request would be taken into account by the time to pay unit. The appellant was required to either pay the tax by 31 January 2011 or have an agreed time to pay request in place by 28 February. But she had made a time to pay request by 23 February; she was told HMRC would contact her to discuss the situation. They telephoned her in March but did not reach her and a letter was issued requesting her to call back within seven days. On 23 March 2011, she contacted HMRC and agreed a monthly payment plan which commenced in June 2011.
The tribunal had to decide whether there was a reasonable excuse for the late payment. There was no explanation as to why an agreement was not reached on 23 February. HMRC tried to make contact after 28 February and the tribunal found that the appellant made all reasonable attempts to arrange a time to pay arrangement prior to 28 February. HMRC relied on the fact that she did not contact them until 23 May 2011, but the tribunal found that her husband’s alcoholism, together with the separation and the difficulties such as childcare and housing associated with the separation amounted to a reasonable excuse.
The tribunal allowed the appeal.
Mark Savage was unrepresented and had no assistance with his appeals to HMRC. Savage was working at three jobs in parallel during 2008-09 and 2009-10; one of these was as an employee of a business called Allied Cleaning. He was paid £5.61 per hour in 2008-09 and £5.73 per hour in 2009-10; he was paid in cash less an amount said to be for tax. He requested payslips but these were never provided. HMRC concluded that he had underpaid tax of about £2,300 for the two years in question.
Savage asked for a time to pay arrangement and was told that he first had to complete self-assessment returns. Returns were issued on 5 January 2011, to be submitted on or before 12 April 2011. Savage posted them on 14 March 2011, but HMRC claimed not to have received them until 14 April 2011. One of the forms was unsigned and returned to him. Savage received a penalty notice for £100 and later a surcharge notice for £66.85. He appealed.
The tribunal found that the return had been posted on 14 March and was therefore deemed to have been received by 17 March. This deeming provision is not rebutted unless the contrary is proved. HMRC provided no evidence that it did not receive the returns until 14 April 2011. The penalty was set aside. The surcharge was 5% of the tax unpaid, but is not chargeable when a time to pay arrangement is in place. Savage had made it clear that he was unable to pay the tax and had a reasonable and genuine belief that, having submitted his returns, he would be given a longer timescale for payment.
The appeal was allowed and the surcharge discharged.
Fairmile Consulting Ltd appealed against a penalty of £500 imposed in respect of the late filing of form P35 for the year 2009-10. The filing date was 19 May 2010 and the return was filed on 21 September 2010.
The appellant’s agent filed the return along with those for nine other clients and there was no problem with the other nine. They only realised that there was a problem when they received the penalty notice from HMRC in September.
HMRC claimed that there was no problem with the filing system as no error message had been displayed. The penalties were correctly charged in accordance with the legislation and it is the responsibility of the employer to ensure that their tax affairs are up to date. Reliance on an agent cannot be a reasonable excuse. The tribunal noted the return was filed late and that the penalty was due. There is no statutory obligation on HMRC to issue reminders. The tribunal confirmed the penalties and dismissed the appeal.
The facts are very similar to those in the case of Global Legalisation Services, yet the outcome was entirely different.
Helen Wilson appealed against late filing penalties imposed for the late filing of the partnership tax return. A paper return was submitted on 25 January 2011 and was rejected on 8 February as incomplete, as it was unsigned. A second return was rejected on 11 February 2011, as it was also unsigned. A late filing penalty notice was issued.
The appellant claimed that she had been unable to lodge partnership returns by internet without a UTR, which had not been received by the filing date. A return was hand delivered on 31 January 2011. There was no record of contact by either the taxpayer or her agent requesting the UTR or advising of difficulties with the website.
The tribunal dismissed the appeal and confirmed the penalty.
Thurmaston Tool & Die Retirement Benefit. An appeal was made against a penalty of £800 imposed in respect of the late submission of form P35 for the year 2009-10. The filing date for the form was 19 May 2010, but at the time of the hearing, no form had been filed. The appellant’s agent appealed and stated that his client did not understand why a penalty had been issued and that if documents were required by HMRC he would be notified by post. All the tax had been paid and the ordeal had been very stressful as his client did not have the capacity to understand the obligations. The agent had been authorised to assist and awaited the code to file the return on line. A review was requested in which it was stated that the agent’s authorisation code had not been received, despite attempts over 12 months to get the information. HMRC upheld the decision.
The tribunal found that a lack of authority to act on behalf of the appellant would have no impact on the agent’s ability to submit the client’s return by the due date. The agent does not appear to have been instructed until after the due date and this cannot therefore provide the appellant with a reasonable excuse. The tribunal has no power to mitigate the penalties and therefore confirmed the penalties and dismissed the appeal.
B&B Tree Specialists appealed against five surcharge assessments relating to eight late payments (two were below the de minimis limit). The business had suffered severe cashflow problems for some time, but there were no specific reasons for this. However, the appellant did contact HMRC’s National Advice Centre, which advised him to contact The Business Payment Support Service, which he could not recall having done. Instead, he paid his VAT liability by post-dated cheques. In February 2010, he was advised that he must make electronic VAT payments, but continued to submit post-dated cheques, which were returned to him.
Insufficiency of funds is not a reasonable excuse, although an insufficiency caused by an exceptional circumstance may be. The appellant, however, had no particular reason other than the downturn in the economy and therefore had no reasonable excuse.
The tribunal decided that the appellant was not blatantly disregarding his responsibilities, but his actions were no those of a prudent person. The surcharge was therefore due.
Pontyberem Community Council appealed against penalties of £400 for failure to file its employers annual return (P35) on time. A decision notice dismissing the appeal was issued. The council’s accountant wrote to the tribunal explaining that the council ‘is considering seeking permission to appeal to the upper tribunal’, requesting ‘full written findings of fact and reasons for the decision’. This is in accordance with the rules which provide that before an application for permission to appeal can be made, it is necessary to request full written findings of fact and reasons for the decision from the tribunal.
The council had received a notice from HMRC to file the P35 by 19 May and to pay any outstanding tax due. The clerk to the council completed the form but, although he believed that he had submitted the form, he had not successfully filed it. On 27 September, HMRC issued a penalty determination in the sum of £400 for the four months from 20 May to 19 September 2010.
The current clerk to the council wrote to HMRC to appeal; this appeal was rejected and the clerk was informed that the return was still outstanding. It was eventually filed online on 14 March 2011.
The appeal stated that the previous clerk had honestly believed that the return had been submitted and the tax had been paid, the council has only become aware of the default when they heard from HMRC in September. They also stated that the £400 was extortionate, given that the tax had been paid on time.
The tribunal rejected the latter claim, since the penalty is the amount imposed by statute. He accepted that an honest belief that the return had been filed was a reasonable excuse, but that this excuse could not exist following the date of HMRC’s rejection of the appeal. The return was not filed until 14 March 2011. He therefore rejected the appeal and confirmed the penalty.
You can also see earlier cases. PAYE late-filing penalties
HMRC has agreed a new approach to PAYE late-filing penalties. As tribunals started dismissing penalties where it appeared HMRC’s approach amounted to revenue-raising rather than enforcing the deadline, the credibility of the system came into question. The tribunals found it unfair that employers were unable to rectify their mistake when the penalty was £100, as they were not informed until the penalty had increased to £400.
The problem arises because HMRC is unable to be certain which employers have failed to file their P35s on time until around mid-September.
HMRC will undertake to:
- Change the notification date for 2011-12 from mid-February to mid-March 2012, so that employers will receive it much nearer to the end of the tax year.
- Annual return reminders will be sent out from 28 April 2012, where HMRC thinks there are outstanding P35s for the year.
- From 31 May 2012, HMRC will introduce a P35 interim penalty letter that will go to employers within a month of the filing deadline. The letter will tell employers they have incurred a late return penalty and explain what to do to avoid it increasing.
- Improve online guidance for submitting P35s online, including specific advice about the test-in-live service to reduce the number of employers who believe their test submission is the live submission. HMRC says: ‘The on-screen messages within the HMRC online product will also make it much clearer that even when a successful test transmission has been made, a live transmission is still required.’
- Instruct Employer Helpline staff to tell employers about filing dates when setting up new employer schemes, to help them avoid a penalty.
- For next year, improve the information on the P35 and the reminders to include a warning that the first penalty notice will cover four months.