First-tier Tribunal (Tax)

[2010] UKFTT 234 (TC)

TC00533

Appeal number TC/2010/00845

Failure to file annual returns – reliance on 3^rd party – reasonable excuse?

FIRST-TIER TRIBUNAL

TAX

                                         THIRD STONE LIMITED                        Appellant

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                                   REVENUE AND CUSTOMS               Respondents

                                                TRIBUNAL:  P M PETHERBRIDGE – Judge

                                                                         A P SPIER - Member

Sitting in public in Nottingham on 12^th April 2010

Mr R Holmes for the Appellant

Mr P Oborne for the Respondents

© CROWN COPYRIGHT 2010

DECISION

The Facts

1.     Third Stone Limited is a limited company of which Richard Holmes was a Director from incorporation and its Company Secretary was Ian Phillips appointed on the 13^th September 2004.

2.     Richard Holmes set up the Company following advice he received.

3.     The registered office of the Company was originally at 39 Castle Street, Leicester, Leicestershire.  Whilst so far as Mr Holmes was concerned, Ian Phillips was responsible for the Company affairs – he had agreed in an e-mail of the 24^th August 2004 to Mr Holmes to acting on behalf of the company as its Company Secretary – it would appear that the formalities were sub-contracted by Mr Phillips to Core Management Group (Accounting Services) Limited, operating from The Gasworks, Aylestone Road, Leicester LE2 7LZ.

4.     Since the issue of the filing of late return and penalties have arisen, Mr Holmes has now instructed Chartered Accountants and Business Advisers, Clear and Lane to act on his behalf.

5.     No Employers end of year returns had been filed on behalf of the Company for the financial years 2006/2007, 2007/2008 and 2008/2009.

6.     On the 1^st September 2009, Mr Holmes received a penalty notice from the Respondent that the end of year return due on the 19^th May 2009 had not been filed and the penalty was £400.  That was the first that Mr Holmes was aware that there had been a failure to file an end of year return.  

7.     Mr Holmes was then advised that no Employer’s end of year returns had been filed for the financial years 2006 through to 2009.

8.     Mr Holmes relied upon those returns having been filed on behalf of the Company by Mr Phillips.

9.     Mr Holmes took up with his Company Secretary the failure by him to have filed the final year employer annual return and was told by Mr Phillips that he had at all times filed the returns with the Respondent.

10.  The Respondent says that no employer final returns had been filed for the financial years from 2006 to 2009.

The Evidence

11.  We heard oral evidence from Mr Holmes who explained that he had set up his Company with advice in 2004 and that Ian Phillips was the Company Secretary responsible for the Company’s statutory responsibilities, which he had accepted when appointed as Company Secretary.

12.  Mr Holmes said that he had first received notification of a penalty for failure to file an Employer’s end of year return in May 2009 and he immediately changed the accountants of the Company to his present firm, Clear and Lane.

13.  Mr Holmes said that Mr Phillips had told him that he had filed for each financial year from 2006 the employer’s end of year return, but was unable to produce any copies to that effect.

14.  Mr Holmes said that once he received the first penalty notice he had moved the registered office of the company to his own residential address, which was 35 Glen Park Avenue, Glenfield, Leicester LE3 8GG. 

15.  Mr Holmes said that he had been charged on an annual basis by Mr Phillips for a full Company Secretary service.

16.  Mr Oborne for the Respondent said that when Mr Holmes’ new accountants had been instructed they had filed the employer’s end of year returns and these had been accepted by the HMRC.   Mr Oborne made the comment that had the returns been previously filed, the returns filed on behalf of the Company by Clear and Lane would not themselves have been accepted.   That indicated that the first end of year returns for Third Stone Limited were, in fact, those filed on its behalf by Clear and Lane following the Appellant receiving the first penalty notice in May 2009.  

Findings and conclusions

17.  Mr Holmes has not denied that the end of year employer’s returns for the financial years commencing 6^th April 2007 to the 5^th April 2009 have not been filed on behalf of his company, Third Stone Limited.

18.  Mr Holmes argues that the responsibility for filing those returns was that of his Company Secretary, Ian Phillips, who had been appointed by the Company to act as its Company Secretary when the company had been incorporated in 2004.

19.  We accept that Mr Holmes first became aware of the failure to file the Company’s end of year employer’s returns when he received the penalty notice in May 2009.  We accept that Mr Holmes was told by Mr Phillips that he had, in fact, filed the returns, although that was not true.  It was not true because had that been the case, the returns ultimately filed on behalf of the Company by its new accountants appointed in 2009, Clear and Lane, would not have been accepted by HMRC if those same returns had previously filed on the Company’s behalf by Ian Phillips.

20.  Mr Holmes is unable to produce any evidence from Ian Phillips to the effect that the Employer’s end of year returns for the financial years in question had ever been filed on behalf of the Company by him.

21.  The Tribunal had to decide whether there was reasonable excuse on the part of Mr Holmes for the Company for its failure to file the end of year return, Mr Holmes relying on the fact that he had paid for the secretarial service to be provided for him by Mr Phillips.

22.  The statutory obligation to make end of year returns, by the due date, lies with the employer under Regulation 73 of the Income Tax (PAYE) Regulations 2003 and paragraph 22 of Schedule 4 of the Social Security (Contributions) Regulations 2001.

23.  In the case of an employer failing to make an end of year return on time, Section 98 (a) (ii) and (iii) of the Taxes Management Act 1970, provides for a penalty fixed at £100 for each month during which the failure continues.  

24.  The legislation contained within Section 118 (2) of the Taxes Management Act 1970, allows for a penalty to be set aside where “reasonable excuse” has been given.  The view of HMRC is that “reasonable excuse” will apply only when an exceptional event beyond the employer’s control and which continued throughout all of the period for which the return was overdue, has prevented the return being made on time.

25.  The Tribunal did not consider that Mr Holmes’ reliance on a dilatory agent constituted a “reasonable excuse”.   It is the responsibility of the Company to ensure that its tax returns are up to date, its returns submitted and PAYE deductions paid over by the due date.   The legislation places responsibility for delivery of the completed Employer’s annual return form on the shoulders of the employer and that responsibility cannot be transferred to an agent acting on the employer’s behalf.  

26.  We, therefore, concluded that having heard the evidence of both Mr Holmes and on behalf of the Respondent that there was no “reasonable excuse” for the Appellant’s failure to file the end of year returns for the financial years from 2006 through to 2009 and that, therefore, the penalties levied by the Respondent were upheld.

27.  The appeal is dismissed.

28.  The Appellant has a right to apply for permission to appeal against this decision pursuant to Rule 39 of the Rules.   The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.  

TRIBUNAL JUDGE

RELEASE DATE: 13 May 2010