1. This is
the appeal of Time Together, a company limited by guarantee, against a penalty
imposed for late filing of the 2009/10 end of year return (P35).
2. The appeal
was filed on behalf of Time Together by its accountants, AGL Accountancy
Services Limited (AGL), who had responsibility for the filing the P35.
3. The issues
in the case were whether Time Together had a reasonable excuse for the late
filing of the return, and if not, whether the penalty was correct.
The
law
4. The
regulations for the filing of P35s are set out in the Income Tax (PAYE) Regulations,
SI 2003/2682 reg 73:
“(1) Before
20th May following the end of a tax year, an employer must deliver to the
Inland Revenue a return containing the following information.
(2) The
information is—
(a) the
tax year to which the return relates,
(b) the
total amount of the relevant payments made by the employer during the tax year
to all employees in respect of whom the employer was required at any time
during that year to prepare or maintain deductions working sheets, and
(c) the
total net tax deducted in relation to those payments.
(3)
- (9) …
(10) Section
98A of TMA (special penalties in case of certain returns) applies to paragraph
(1).”
5. As
provided in Reg 73(10) above, Taxes Management Act 1970 (TMA) s 98A sets out
the liability to penalties for non-compliance with these regulations:
“(1) PAYE
regulations…may provide that this section shall apply in relation to any
specified provision of the regulations.
(2) Where
this section applies in relation to a provision of regulations, any person who
fails to make a return in accordance with the provision shall be liable—
(a) to
a penalty or penalties of the relevant monthly amount for each month (or part
of a month) during which the failure continues, but excluding any month after
the twelfth or for which a penalty under this paragraph has already been
imposed…
(3) For
the purposes of subsection (2)(a) above, the relevant monthly amount in the
case of a failure to make a return—
(a) where
the number of persons in respect of whom particulars should be included in the
return is fifty or less, is £100…”
6. HMRC
are empowered to determine the penalty by setting it at such an amount as
appears to them to be correct or appropriate (TMA s 100). Because this is a
fixed monthly penalty, their discretion is limited to ensuring that it is
correct.
7. Section
118(2) TMA, so far as is material to this appeal, provides:
“…where
a person had a reasonable excuse for not doing anything required to be done he
shall be deemed not to have failed to do it unless the excuse ceased and, after
the excuse ceased, he shall be deemed not to have failed to do it if he did it
without unreasonable delay after the excuse had ceased.”
8. There is
no definition in the legislation of a “reasonable excuse”. It has been held to
be “a matter to be considered in the light of all the circumstances of the
particular case” (see Rowland v HMRC [2006] STC (SCD) 536 at [18]).
9. The
taxpayer’s right of appeal against the penalty and the Tribunal’s powers are
set out at TMA s 100B, which so far as relevant to this appeal, are as follows:
“(1) An
appeal may be brought against the determination of a penalty under section 100
above and…the provisions of this Act relating to appeals shall have effect in
relation to an appeal against such a determination as they have effect in
relation to an appeal against an assessment to tax…
(2) …on
an appeal against the determination of a penalty under section 100 above
section 50(6) to (8) of this Act shall not apply but—
(a) in
the case of a penalty which is required to be of a particular amount, the
First-tier Tribunal may—
(i) if
it appears that no penalty has been incurred, set the determination aside,
(ii) if
the amount determined appears to be correct, confirm the determination, or
(iii) if
the amount determined appears to be incorrect, increase or reduce it to the
correct amount…”
10. The Tribunal
thus has limited discretion: it can only adjust a penalty if it is not correct.
The
evidence
11. I was provided with the
correspondence between the parties, together with extracts from the HMRC
internet filing records for Time Together. I was also supplied with a P35
checklist generated for AGL using third party software, and dated 16 December
2010.
The
facts
12. Based on the evidence
provided, I found the following facts.
13. Time Together’s 2009/10 P35 was
due to be filed on or before 19 May 2010. On 12 April at 17.27 AGL attempted to
file it online. The HMRC internet filing record for Time Together for this
filing attempt includes the following data (with original emboldening):
|
Tax Year
|
Submission Type
|
Date Captured
|
Validation
|
|
2008
|
Compete
|
12/04/10 17:27:22
|
Fail
|
14. At 18.25 a further attempt
was made to file the P35. At 18.29 a message was received by AGL from the HMRC
computer system. It said:
“1.
Department 3001 business The submission of this document has failed due to
departmental specific business logic in the Body tag
2.
[ref] business-rule Submission already received for this employer.”
15. By letter dated 27
September, Time Together received a penalty notification for not filing the
P35. This was its first penalty notification. It was charged a penalty of £100
per calendar months for the period from 20 May 2010 to 19 September 2010, a period
of four months. The total penalty was therefore £400.
16. By letter dated 7 October
2010 AGL appealed the penalty on behalf of Time Together. The ground of appeal
was that the P35 had been filed before the due date.
17. By letter dated 21 October 2010
HMRC wrote back to AGL, rejecting the appeal because the return submitted on 12
April was a 2007/08 return and thus the return had been rejected by HMRC’s
software.
18. AGL reviewed the
documentation for Time Together’s 2009/10 return. In the box labelled “Tax Year
ending” the date 2008 had been included instead of 2010.
19. By letter dated 4 November
AGL told HMRC that the other data sent on April 12 2010 was correct. AGL requested
a HMRC review of the penalty decision, and also asked HMRC if it needed to
resubmit the data.
20. By letter dated 14 December
2010, the HMRC review officer upheld the penalty and told AGL that the P35
needed to be resubmitted. The refiling was carried out on 16 December, immediately
following receipt of HMRC’s letter.
21. The letter of 14 December
opened by stating that “the decision in the letter issued to you on 21 April
2010 should be upheld.” AGL’s reply of 16 December said that no letter dated 21
April had been received and asked for a copy.
22. By letter dated 3 January
2011 HMRC stated that the reference to 21 April had been an error; the
reference should have been to “the decision letter issued on 21 October 2010.”
AGL’s
submission on behalf of Time Together
23. In relation to reasonable
excuse, AGL submitted that:
(1)
although the wrong date was shown on the P35, the correct National
Insurance and tax contributions had been included;
(2)
when AGL received the rejection note timed at 18.29, stating “submission
already received for this employer” they had assumed that the earlier attempt,
at 17.27 had been successful, despite receiving a “Fail” message; and
(3)
the insertion of 2008 rather than 2010 was caused by a “software glitch”
which has since been remedied.
24. Mr Laird, on behalf of AGL, said
in his letter of 16 December 2010 that:
“The
first information I had regarding the non-submission of the P35 was a penalty
notice dated 27 September 2010 and had I received the letter you mentioned
dated 21 April 2010 highlighting no doubt the lack of submission of the P35 I would
have immediately addressed the position thus avoiding any penalty.”
HMRC’s
submission
25. In relation to reasonable
excuse, HMRC submit that, having received two messages that the online filing
had failed, a prudent person would have made enquiries with the HMRC Online
Services Helpdesk or checked their own internal records to ascertain why they
had been sent these messages. AGL had thus not shown that it had taken all
reasonable steps to ensure that the return was received by the due date.
26. In relation to the penalty, HMRC
say that these are prescribed by statute, and that they are not bound to follow
any statutory timetable for the giving of reminders to those who have not met
their obligations.
Discussion
and decision on reasonable excuse
The position of the accountant
27. The mandatory requirements
for submitting a P35 state that the return must include “the tax year to which
the return relates”. This requirement was not met by AGL.
28. Online filing operates
automatically, so entering the wrong year meant that the HMRC system was unable
to process the return. The fact that the rest of the data correctly related to
2009/10 was thus not in point: the return was not filed.
29. AGL received a fail notice
when it first tried to file the P35 at 17.27 on 12 April, and another at 18.25.
At 18.29 the HMRC system told AGL that the reason for the second failure was
that a submission had already been received. AGL thus assumed that the first
attempt at filing the return had succeeded, despite the fail message.
30. AGL states that the cause
of the mistake was a “software glitch”. The Tribunal was provided with no
further evidence as to the nature or extent of this “glitch” - for instance,
whether it affected other accountants, and other clients of this accountant?
Could it have been an input error rather than a software error? Without further
evidence, I do not make any finding of fact as to the reason for the error.
31. HMRC provide a help desk for
taxpayers and agents who have questions about, and problems with, their online
filing. Had AGL called the helpline to check whether the return had in fact
been submitted, despite the receipt of two fail messages, the real reason for
the rejections would have been discovered. Calling the helpline would have been
a reasonable and sensible course to take. This is the position, whatever the
cause of the error.
32. The test I have to apply is
whether the actions taken by the taxpayer amount to a reasonable excuse, and I
find that the AGL’s failure to check with HMRC as to the reasons for the reject
messages means that entering the wrong year into the computer does not
constitute a reasonable excuse for not filing Time Together’s P35.
The position of the taxpayer
33. The taxpayer is, however, not
AGL but Time Together. I have thus also considered whether that company has a
reasonable excuse because it relied on its agent, AGL, to file its returns.
34. Reliance on a third party agent
has been held to provide a reasonable excuse (Rowland v HMRC [2006] STC (SCD) 536). Rowland involved a “difficult and complex area of tax law”,
including “the arcane matters of film finance partnerships”. A similar decision
was reached in The Research and Development Partnership Ltd v HMRC [2009] UKFTT 328 (TC), which concerned complicated questions of research and
development tax credits.
35. This Tribunal has taken a
different view in more straightforward cases (see, for example, Richfield
Fashion [2010] TC 00957). In The Research and Development Partnership the
judge said that when considering whether reliance on a third party constitutes
a reasonable excuse “it is proper to have regard to the nature of the task.”
36. In the instant case a simple
mistake was made. This could have been rectified had the agent contacted HMRC
to check the position. The situation is not analogous to Rowland. Time
Together’s reliance on AGL as agent thus does not constitute a reasonable
excuse.
Discussion
and decision on the penalty
37. The penalty notice was
issued on September 21 2010. Four months had passed since AGL’s mistake, and
four penalties of £100 had accumulated. No earlier notice was issued, either on
April 21 or at any other time.
38. When AGL was informed of its
error, and told that it was necessary to refile the P35, it carried out this
task immediately. AGL say in their letter of 16 December 2010, that had they been
told of the mistake in April, they would have rectified it before any penalty
had arisen. I accept this: had HMRC informed AGL of the mistake at an earlier
point, I am sure it would have been remedied straight away.
39. A £400 penalty could thus be
seen as unfair. This case is not one where the taxpayer or his agent has
knowingly delayed compliance with an obligation.
40. However, it is also
important to see the penalty provisions in the wider context of the efficient
operation of the tax system. The information from the P35s forms a significant
element in HMRC’s operation of that system. The fixed penalty provisions are deliberately
designed to deter late filing, and to encourage a high level of care from those
inputting data into the system.
41. In any event, the Tribunal
has no discretion to reduce the penalty unless it is incorrect. Here, the P35
was not filed for over four months, so the £400 penalty is correct.
42. Having found that there was
no reasonable excuse and that the penalty is correct, I confirm the penalty
and dismiss the appeal.
43. 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.
Anne Redston
PRESIDING MEMBER
RELEASE DATE: 6 APRIL 2011
© CROWN COPYRIGHT
2011
