TAH Management Services Ltd v Revenue & Customs [2011] UKFTT 537 (TC) (08 August 2011)
[2011] UKFTT 537 (TC)
TC01384
Appeal number: TC/2011/02482
Penalty
for late filing of P35 – failure to obtain activation code – whether reasonable
excuse – no - whether return filed once activation code received – on the
facts, yes – penalty reduced and appeal allowed in part
FIRST-TIER TRIBUNAL
TAX
TAH
MANAGEMENT SERVICES LIMITED Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL:
ANNE REDSTON (PRESIDING MEMBER)
The Tribunal determined the
appeal on 28 July 2011 without a hearing under the provisions of Rule 26 of the
Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (default
paper cases) having first read the Notice of Appeal dated 28 March 2011, HMRC’s
Statement of Case submitted on 27 April 2011 and the Appellant’s Reply dated 23
May 2011.
© CROWN COPYRIGHT
2011
DECISION
1. This
is the appeal by Tah Management Services Limited (“the company”) against a
penalty imposed for late filing of the 2009/10 end of year return of payments
due under Pay As You Earn (“P35”).
2. The
Tribunal decided to allow the appeal in part, and reduced the penalty to £100.
The
law
3. Regulation
73 of the Income Tax (PAYE) Regulations (SI 2003/2682) requires that P35s are
filed on or before 19 May following the end of a tax year.
4. Taxes
Management Act 1970 (TMA) s 98A sets out the liability to fixed penalties for
non-compliance. The taxpayer’s right of appeal against the penalty and the
Tribunal’s powers are 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…”
5. The
taxpayer can appeal a penalty on the grounds of reasonable excuse. The relevant
provisions are set out at section 118(2) TMA.
6. The
statute does not define “reasonable excuse”, but this Tribunal has held that
“an excuse is likely to be reasonable where the taxpayer acts in the same way
someone who seriously intends to honour their tax liabilities and obligations
would act” B&J Shopfitting Services v R&C Commrs [2010] UKFTT 78 (TC).
The
issues
7. There
is no dispute that the return was filed late. The issues are:
(1)
whether the company filed the return on 27 May 2011;
(2)
whether it had a reasonable excuse for the late filing of its P35; and
(3)
whether the penalty of £400 for the period from May to September 2010
should be confirmed.
The
evidence
8. The
Tribunal was provided with copies of the correspondence between HMRC and Mr
Nathoo, Financial Controller of the company, in relation to this Appeal.
9. Mr
Nathoo also provided:
(1)
a copy of an email dated 18 May 2010 entitled “Gateway enrolment
notification”;
(2)
a screenprint from Sage, headed “HMRC intranet submission viewer”;
(3)
an email exchange between Mr Nathoo and Mr Ciaran McNamee of Sage, dated
16 and 17 May 2011 respectively; and
(4)
a further email exchange between Mr Nathoo and Mr McNamee dated 20 May
2011.
10. HMRC provided
extracts from its web guidance headed “Acceptance and rejection messages when
you file online” and an email exchange between Ms Annette Raffetty of the
Appeals and Reviews Unit and Mr James Matthews of the Online Services Appeals
Information Unit, both of HMRC.
The
facts
11. HMRC has gone to
considerable lengths to make employers aware of the move to online filing. In
particular, letters were issued to employers in both November 2008 and November
2009 advising them of the change. The HMRC website also provides extensive
support and advice.
12. The company
tried to file online on 18 May 2010 but belatedly realised that it needed an
activation code. It contacted HMRC to see if they could submit the P35 on paper
but were told this was not permitted. The activation code was requested, but by
the time it was received, the filing deadline had passed.
13. The company says
that it then filed online on 27 May 2010. HMRC reject this, saying that the return
was not filed. This is the first issue in the case, and is discussed below.
14. By letter dated
27 September 2010, HMRC issued a Penalty Notice for not filing the P35. It
charged the company £100 per calendar month for the period from 20 May 2010 to
19 September 2010, a period of four months. The total penalty was therefore
£400. The Notice did not say that the return was still outstanding.
15. The company
contacted HMRC by phone and followed this up with a letter dated 21 October
2010. The letter explained the delay in obtaining the activation code and asked
that the penalty be waived.
16. By letter dated
24 December 2010 HMRC wrote to the company chasing the penalty and saying that
the company “has not submitted all returns on time”.
17. This letter was
received by the company after the Christmas and New Year break, and Mr Nathoo
called Mrs Grantham at HMRC’s Chesterfield office. He asked about the reference
to returns not having been received, but Mrs Grantham could not confirm this
either way. She provided an HMRC helpline number and Mr Nathoo then spoke to a
Mr Evans, who confirmed that the P35 was not showing in the company’s “folder”
but that “there could be many reasons for this”.
18. Sage then assisted
Mr Nathoo to file, or refile, the P35, on 14 January 2011.
19. By letter dated
7 January 2011 the company’s appeal was rejected.
20. By letter dated
17 January 2011 Mr Nathoo asked for the appeal to be reconsidered and received
a reply from HMRC dated 25 January stating that “we have noted what you say and
will write to you shortly with our reply.”
21. Some three weeks
later, the company received a letter dated 9 February 2011 from HMRC’s Debt
Management and Banking department threatening that the company’s goods would be
seized and sold at public auction, that its credit rating would be affected and
that the company “may find the seizure and sale of assets embarrassing.” Mr
Nathoo contacted HMRC and was told the letter had been automatically produced and
should be ignored.
22.
However, by letter dated 24 February HMRC’s Debt Management and Banking
wrote again, saying that:
“you
have chosen to ignore our efforts to resolve the matter of your outstanding
liability. Your debt has been transferred to our distraint department to
schedule a visit to your premises with a view to seizing your goods so they may
be sold at public auction. If you wish to stop this visit you must telephone
the above number within 48 hours of receiving this letter.”
23. The company
again contacted HMRC and were told to ignore the letter.
24. By letter dated
1 March 2011, the HMRC Review Officer rejected the company’s appeal.
25. HMRC say that a
further £400 of penalties have accrued for the period between September 2010
and 14 January 2011, but these have been held over pending this Appeal.
The
first issue
26. The first issue
– whether the P35 was filed on 27 May 2010 - is a question of fact.
The company’s submissions
27. The company say
that it filed its return online on that day. The Sage “HMRC intranet submission
viewer” screenprint was obtained by the company on 14 January 2011, long after
the penalty had been levied.
28. In the box
labelled “received date/time” it shows 21/05/2010 and a time of 13:34:09. At
the bottom of the page is a box headed “submit date/time”, which says
“01/04/2010 00.00.00”. Underneath this box is another, headed “correlation ID”
which is blank.
29. Mr McNamee of
Sage has confirmed to Mr Nathoo that “Received Date/Time” is “the date and time
that the submission has physically been sent” and “submit date” is “the process
date that the payroll was logged into at the time.”
HMRC’s submissions
30. HMRC accept that
the online filing system was accessed by the company on 27 May, but say no
return was submitted because none was received. They say that the HMRC website
makes it clear that an acceptance message is sent out when the return has been
correctly submitted, and that as the company is part of a larger group, it
“would be expected that you would know to ensure that the return has been
submitted successfully.”
31.
Mr James Matthews of HMRC says that if the return had been received, the
correlation ID would have been completed with a 32 character reference number,
and adds:
“It is possible
that the Sage date actually refers (like our online forms and the CD-ROM) to
the date the return was last updated or accessed, rather than submitted.”
The company’s responses to HMRC’s submissions
32. Mr Matthew’s
proposition - that the “received” box might mean the date the return was last
accessed - was forwarded to Mr McNamee of Sage and was denied.
33. Mr Nathoo
rejects HMRC’s submission that the company should have been aware of the filing
message because it is part of a larger group, saying that had he been aware of
the need to receive a submission receipt he “would have rectified forthwith”.
34. He also says
that the company’s obligation “was to send the return, not to check with
HMRC that it was received.”
35. Finally, he
states that the company has an impeccable filing and payment history, and this
is not disputed by HMRC.
Discussion
and decision on the first issue
36. The company have
provided independent third party evidence, in the form of the screen print and
the explanatory emails from Mr McNamee, that the return was submitted by the
company’s software.
37. It is clear that
it was not received by HMRC, but that does not mean that it was not submitted.
38. I find that, on
the balance of probabilities, and relying on the evidence provided, that the
company’s P35 was submitted online on 27 May 2010, notwithstanding that, for
whatever reason, it was not stored in HMRC’s computer. It follows that there was
no default after 27 May 2010.
39. The Tribunal has
the power to confirm the penalty if it is correct; to set it aside, if it
appears no penalty has been incurred, or “if the penalty appears to them to be
incorrect, increase or reduce it to the correct amount.”
40. The penalty is
not correct, because the return was filed on 27 May 2010. The part of the
penalty relating to the period after that date must be discharged.
Discussion
and decision on the second issue
41. In view of the
findings above, there is no need for me to consider, in relation to the period
after 27 May, whether the company had a reasonable excuse for late filing –
though had this still been in issue, I would have found that the company acted in
the same way as “someone who seriously intends to honour their tax liabilities
and obligations would act” - they did everything they reasonably believed was
necessary in order to file online.
42. However, it is
also necessary to consider the period before 27 May, as the due date was 19
May. The return was therefore filed eight days late.
43. I have thus considered
whether the company had a reasonable excuse for not filing the return on the
due date.
44. The move to
online filing had been widely advertised, and all employers had been notified.
A person who behaved in the same way as “someone who seriously intends to
honour their tax liabilities and obligations would act” would have been aware
of the need for the activation code, rather than leaving it to the last minute.
45. I therefore find
that there was no reasonable excuse for the late filing on 27 May 2010.
46. Taking the two
periods together, it is not the case that “no penalty has been incurred”. I reduce
the penalty to £100, in relation to the period from 19 May to 27 May 2010.
47. The further £400
of accrued penalties are not part of this Appeal, but the Tribunal’s finding
that the return was filed on 27 May means no further penalties are exigible in
relation to the 2009/10 P35.
48. Although not a
factor which the Tribunal is able take into account in setting the correct
level of penalties, I record my concern at the threatening tone of the letters
sent by HMRC’s Debt Management and Banking Department, and note that the return
was under appeal when both these letters were issued.
49. 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
TRIBUNAL PRESIDING MEMBER
RELEASE DATE: 8 AUGUST 2011
