First-tier Tribunal (Tax)

[2011] UKFTT 51 (TC)

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TC00929

Appeal number: TC/2010/04334

Penalty for late filing of end of year P35 – delegated to agent – whether reasonable excuse - no

FIRST-TIER TRIBUNAL

TAX

WALL PANELLING LTD Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

TRIBUNAL: MICHAEL S CONNELL (TRIBUNAL JUDGE) MICHAEL ATKINSON (MEMBER)

Sitting in public at York House York Place Leeds LS1 2ED on 13^th October 2010

Mrs C Chadwick, Director of the Appellant Company,  for the Appellant

Mr Osborn, Senior Officer of HMRC, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.       This is an appeal against penalties imposed for the late submission of the Employer’s Annual Return for the tax year 2009.

2.       An employer has a statutory obligation to make End of Year Returns before 20 May following the end of a tax year in accordance with Regulation 73 of the Income Tax (PAYE) Regulations 2003 and paragraph 22 of Schedule 4 of the Social Security (Contributions) Regulations 2001.

3.       In the case of an employer failing to make an End of Year Return on time section 98 A (2) and (3) Taxes Management Act 1970 provides for a fixed £100 penalty for each month (or part of month) during which the failure continues for each batch (or part of batch) of 50 employees.

4.       The Appellant Company commenced trading in 2007 and registered to file End of Year Returns on-line from 2007/08. The P35 for that year was due to be filed by the 19 May 2008 but was not received until 4 June 2008. A penalty notice for £100 for the period 20 May 2008 to 4 June 2008 was issued and paid by the Appellant. The Appellant was therefore aware of the need to file the End of Year Return on time and the penalty for not doing so.

5.       The 2008/09 P35 was due on 19 May 2009. No P35 was issued to the Appellant Company as it had registered to file on-line. The Return was not filed until 9 February 2010.

6.       Penalty notices for £400 were issued on 28 September 2009 and on 25 January 2010 and a final penalty for £100 on 12 February 2010 totalling £900 for the 9 months in which the Return had not been filed.

7.       The Appellant Company appealed the penalty notices shortly after the £400 penalty that had been issued on 25 January 2010. HMRC rejected the appeal.

8.       On 25 March 2010 the Appellant Company requested a review of the decision to reject the appeal and forwarded a copy of a letter dated 11 February 2010 which their accountants had sent to HMRC which said that there had been a mix up between the Appellant Company and the accountants, each of which was under the impression that the other had filed the P35. The letter also provided background details of the Company and the financial impact of the penalty.

9.       HMRC issued a review conclusion letter on 30 April 2010 saying the obligation to make a tax return on time is the tax payer’s. It remains the tax payer’s obligation regardless of the fact that he may have delegated the task to making the return to an agent. The mistake of an agent did not relieve the tax payer from his legal obligation to ensure his returns were filed on time as to do so would be unreasonable and unfair to employer tax payers who adhered to the regulations. Furthermore the first £400 penalty notice had been issued on 28 September 2009 which must have put the tax payer on notice that there was a problem. No action was taken by the company or its accountants after the issue of that penalty notice.

10.    Penalties may only be set aside if the tax payer has a reasonable excuse which existed throughout the whole period of default. Legislation does not define what a reasonable excuse is but it is often regarded as an exceptional event beyond the tax payer’s control and his agent or something that could not reasonably have been foreseen which prevented the return from being filed by the due date, for example severe illness or bereavement.

11.    The Appellants had relied on their accountant to file the return. However in view of the default in the previous year for which the Appellant Company had been penalised the reasonableness of the excuse for the default in 2008/09 is diminished. Legislation and case law authority make it clear that it is the responsibility of the employer to ensure that its tax affairs are up to date and returns submitted by the due date. The Appellant stressed the financial impact of the penalties on a young company struggling to survive and the potential impact of job losses to the UK manufacturing industry. Although the Tribunal sympathised with the Appellant Company in this regard these facts do not amount to a reasonable excuse.

12.    For the above reasons the Tribunal dismissed the appeals.

13.    This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  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.

M S Connell

TRIBUNAL JUDGE

RELEASE DATE: 14 January 2011