[2011] UKFTT 587 (TC)

TC01430

Appeal number: TC/2011/03489

Penalty for late submission of P35 – whether the return was filed in “test” mode – on the balance of probabilities, return filed by the due date – appeal allowed and penalty discharged

FIRST-TIER TRIBUNAL

TAX

GLOBAL LEGALISATION 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 26 August 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 5 May 2011, HMRC’s Statement of Case submitted on 14 June 2011 and the Appellant’s Reply dated 24 June 2011.

© CROWN COPYRIGHT 2011

DECISION

1.     This is the appeal by Global Legalisation 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 that the appeal was allowed.

3.     The issues in the case were whether the company had delivered the P35 return to HMRC by the due date; if not, whether it had a reasonable excuse for its late filing, and if not, whether the penalties of £800 for the period from May 2010 to January 2011 were disproportionate.

4.     The legislation and regulations, so far as relevant to this appeal, are set out in the Appendix to this Decision.

The facts

5.     The company registered as an employer in March 2010, so only one month fell within this P35 return period.

6.     The company’s agent, Louw & Company (“the agent”), submitted a number of 2009-10 P35s for other clients without encountering any problems.

7.     On 26 April 2010 the agent believed the company’s P35 had been filed successfully. They printed out a copy of the return, and received the following email from the HMRC website:

“Successful receipt of online submission for Reference []

Thank you for sending the PAYE End of Year submission online.

The submission for reference [] was successfully received on 26-04-2010. If this was a test submission, remember you still need to send your actual Employer Annual Return using the live transmission in order for it to be processed.” 

8.     By letter dated 27 September 2010, HMRC issued a penalty notification for not filing the P35. It charged the company a penalty of £100 per calendar month for the period from 20 May 2010 to 19 September 2010, a period of four months. The penalty was therefore £400.

9.     By letter dated 19 January 2011, the agent appealed the penalty on the company’s behalf, stating that the return had been filed on 26 April 2010 and including a copy of the “successful receipt” email set out above.

10.  On 24 January HMRC issued a further penalty of £400, for the four month period from 20 September 2010 to 19 January 2011.

11.  By letter dated 17 February 2011 HMRC rejected the company’s appeal, saying “please note that the response to your online submission states that the submission may be a test.”

12.  The agent filed the return online on 18 February 2011.

13.  By letter dated 24 February, the agent requested a review of the HMRC penalty decision, and said:

“We have checked all our records and could not find any record that this was a test. In fact we never use the test function and the system would prompt us that this is not the actual return. I would request that you send us some confirmation from your side to prove this was indeed a test.”

14.  The HMRC review officer confirmed the penalty and said that “according to my records, 2 online submissions were made, a ‘test’ on 26 April and the ‘live’ return on 18 February”. He enclosed a document entitled “summary search results” as confirmation. 

15.  A further penalty of £100 for the period from January 20 2011 through to 18 February 2011 has been suspended pending the outcome of this Appeal.

The agent’s submissions on the company’s behalf

16.  In the Notice of Appeal submitted on the company’s behalf, the agent says they were surprised to learn that the return might be a test; that they submitted several returns for other clients on the same basis and all appeared to have been accepted. They say:

“the only reason may be that the test function may have been activated accidently on our software. Unfortunately once the test return is filed which is exactly the same process as filing the normal return there is no way to know that the return is a test. In fact as it is our normal procedure we printed the confirmation email from HMRC which clearly stated ‘this was a successfully [sic] test’ This makes it very difficult for us then to know that the return was actually never received.”

17.  In their reply to the HMRC Statement of Case, the agent is more robust in their rejection of HMRC’s assertion that they filed a test submission, saying:

‘We are agents and very experienced with the online filing process – we have no need for the test function. We are adamant that we used the normal system in the same way that we did for dozens of other annual returns filed at the same time.”

18.  They submit that if HMRC offers a test function then it:

“has a responsibility to ensure that at ALL stages of the process it is clear that the test function has been used. It is very simple for their software to be designed so that it clearly states that the submission was made a as a ‘test’ only. It isn’t good enough that they infer that a submission might have been a test.”

19.  The agent also submits that the penalty is unreasonable and “entirely disproportionate.” They particularly draw attention to the fact that the company had only been registered as an employer for the month of March 2010.

HMRC’s submissions

20.  HMRC say as follows:

“HMRC highlight that the email generated is generic for both test and live submission. The email clearly states that ‘if this was a test submission, remember you still need to send your actual Employer Annual Return using the live transmission in order for it to be processed.’ HMRC would like to advise that for an employer to submit a ‘test submission’ they have to actively access test mode on the system.”

21.  As a result, they say that the company did not have a reasonable excuse. In relation to quantum, they say this is fixed by statute. The return had been outstanding for eight months and so the fixed penalty was rightly charged at £800.

Decision

22.  My first task is to weigh the conflicting evidence.

23.  Although in their Notice of Appeal the agent raises the possibility that they could have “accidentally” submitted the return in test mode, in their Reply to the HMRC Statement of Case they state that the return was filed in “live” mode, in exactly the same way as the returns they had submitted for other clients.

24.  This is a difficult evidential decision: is it more likely that an experienced firm accidentally switched on test function despite the fact that HMRC say had to be “actively accessed”? Or is it more likely that the HMRC computer system suffered from a glitch so that, although the return was correctly submitted and thus “delivered” to HMRC, it was then recorded, incorrectly, as a test submission?