Sportical Global Communications Ltd v Revenue & Customs [2012] UKFTT 537 (TC) (22 August 2012)
DECISION
1.
The Appellant (“Sportcal”) appeals against a penalty determination by
the Respondents (“HMRC”) issued on 15 August 2011 under Schedule 56 to the
Finance Act 2009. (All references to Schedule 56 in this decision are to that
Schedule.)
2.
At the end of the hearing, we announced our decision in the following
terms:
“The Tribunal has considered the evidence and the
arguments of both parties. The Tribunal finds, in the light of Schedule 56 to
the Finance Act 2009, that the number of defaults by the Appellant in respect
of 2010-11 was seven: the legislation does not permit flexibility in relation
to the time of payment. The Tribunal further finds that, following the first
late payment, HMRC notified the Appellant where information about penalties
could be found on their website, and told the Appellant that any overdue PAYE
should be paid now, and that PAYE payments should be made on time in the
future. In relation to payments under the time to pay agreement, it was
necessary for all the cheques in payment to reach HMRC by the specified dates
in order not to give rise to penalty defaults, and on one occasion this
condition was not fulfilled.
The Tribunal considers that it would be desirable
for more information about the penalty system to be included in the first
notification letter and that the importance of this letter should be made
clear. However, this is merely a question of HMRC’s practice, and does not
affect the liability of the taxpayer to the penalties found to be due.
The Tribunal also considers that HMRC’s website
information as to calculation of the penalties should be amended to match the
terms of Schedule 56, to avoid the risk of confusion.
The Tribunal finds that the penalty is properly due,
that there is no reasonable excuse for the late payment, and that there are no
special circumstances justifying any reduction in the amount of the penalty.
It is regrettable that no copies of the bundle
reached the Appellant. We suggest that HMRC check with appellants in advance of
hearings that all relevant documentation has been received.
Whilst the Tribunal is conscious of the Appellant’s
difficulties in respect of the payments and the incurring of the penalties, it
must dismiss the Appellant’s appeal.”
3.
Following the announcement of our decision, Mr Laflin requested a full
decision setting out the facts, our findings and the reasons for our decision.
The facts
4.
The evidence consisted of a single bundle of documents. There was no
oral evidence. From the evidence we find the following facts.
5.
A number of Sportcal’s payments of monthly PAYE for the year 2010-11
were made after the due dates. Mr Laflin, in his letter to HMRC dated 9
September 2011, stated that the payments from month 4 onwards had been sent to
HMRC on the dates set out below; he commented that, allowing for one day delay
in the post, this should have resulted in HMRC receiving Sportcal’s payments
either on time or with a few days’ delay. On this basis, he also indicated
whether each of the payments had been delayed:
Month 4 – 17 August: 1 day early
Month 5: 21 September – 3 days late
Month 6: 26 October – 7 days late
Month 7: 1 December – 13 days late
Month 8 – 10 January – 21 days late (closed for
Christmas and New Year)
Month 9: 26 January – 7 days late
Month 10: 18 February – on time
Month 11: 15 March – 3 days early
Month 12: 20 March – 3 days late
6.
He said that at the start of Sportcal’s financial year in May 2011, it
had been in arrears with its PAYE. There had been a meeting with a
representative of HMRC, who agreed to allow Sportcal to pay the amount due in
respect of its month 2 payment over a period of three months (6 October, 6
November and 6 December). It was also agreed that the month 3 payment should be
made by 30 July.
7.
According to HMRC’s records, their officer Ian Miller had met Mr Laflin
on 15 July 2010. Mr Laflin requested “Time to Pay” for months 2 and 3; he
explained that cash flow was tight because Sportcal had had to fight a court
case which it had won, and from which it was expecting a settlement of £27,000.
Mr Laflin had proposed the following (as set out in HMRC’s database record):
“Month 1 today; cheque collected for £20,749.94
Month 2 £20, 884.05 payable in 3 instalments of
£6,962.00 on 06.08.10, 06.09.09.10 & 06.10.10
Month 3 £20,472.74 payable on 30.07.10
Month 4 et seq to be paid on time
I reviewed the company’s cash flow and saw that the
above had been built in so I agreed to his request. I said I would issue a
letter of confirmation but warned of further distraint action if the
arrangement breaks down.
Letter issued.”
8.
According to HMRC’s internal records, a telephone call had been made by
HMRC to Sportcal on 25 May 2010. Mr Laflin had promised to pay the month 1 tax
the following day. The officer advised him to make monthly payments by BACS,
which would allow payment to be received by the 22nd of each month.
9.
On 27 May 2010 a “P101” notice was issued. These notices set out the
amount of the PAYE debt. On 15 June 2010 Mr Laflin telephoned to tell HMRC that
the month 1 payment would be paid by cheque on 29 June 2010. On 1 July 2010
HMRC issued a further P101. After the note of the meeting between Mr Laflin and
Ian Miller, HMRC’s records show that a further P101 was issued on 30 July 2010.
10.
The next part of HMRC’s record included in the evidence, a note on 26
October 2010, shows that Mr Laflin had promised that a payment of £20,55.47
would be made on 25 October 2010. A further P101 was issued on 26 October 2010
in respect of month 6. On 24 November 2010 a P101 was issued in respect of
month 7. On 29 December 2010 a P101 was issued in respect of month 8. A P101 in
respect of month 9 was issued on 26 January 2011. No further HMRC records were
included in the evidence.
11.
On 15 August 2011 HMRC issued a penalty notice to Sportcal under
Schedule 56. The amount of the penalty was £5,813.32. Mr Laflin responded with
his letter of 9 September 2011. On 19 September 2011 HMRC wrote to Sportcal;
the letter was headed “Penalty notice for late PAYE payment”, and stated that
the penalty amount was £5,199.64. The calculation included in the letter showed
that the months for which the payments had not been made on time were months 1,
2, 5, 6, 7, 8, 9, 10 and 12. No penalty was payable in respect of month 1. In a
separate letter the same HMRC officer explained that he agreed that part of the
late payment penalty was not due, because HMRC had allowed Sportcal to pay
month 3 late before the month 3 payment date. He had therefore reduced the
penalty charge. He continued:
“Time to pay proposals agreed after the payment date
do preclude penalty charges.”
(We comment below on the latter sentence of his letter.)
12.
Mr Laflin responded on 5 October 2011. He set out reasons why he
considered that the penalty should be reduced. He offered to pay a sum of £848,
indicating that this was “a reasonable amount of interest for the 4 occasions
that we were a week or more late”. If this proposal was not accepted, he wished
to proceed with an internal review.
13.
On 18 November 2011, Miss F MacDonald, a Collector in HMRC’s Debt
Management office in Essex, wrote to Mr Laflin setting out the results of her
review.
14.
Mr Laflin responded on 15 December 2011. He expressed disappointment,
and indicated that he would be referring the matter to an independent tribunal.
On the same day he wrote to the Tribunals Service to express the wish to appeal
against the penalty. No copy of Sportcal’s Notice of Appeal dated 15 December
2010 was included in the bundle.
15.
On 9 December 2011 HMRC’s Central Policy office had written to the
Tribunals Service requesting a standover of appeals against penalties under
Schedule 56, in order to consider the implications of recent Tribunal
decisions, in particular Agar Ltd (TC/2011/04910), and to take any
necessary action.
16.
In its acknowledgment dated 21 January 2012 of Sportcal’s Notice of
Appeal, the Tribunals Service referred to the letter from HMRC dated 9 December
2011, and enclosed a copy.
17.
On 11 April 2012, K Sharpe, a Collector in HMRC’s Essex Debt Management
Office, wrote to the Tribunals Service to explain that when HMRC had worked out
Sportcal’s late payment penalty for 2010-11, they had treated the late payment
of amounts due on 19 or 22 April 2011 as being a default during the year
2010-22. This had been reconsidered as a result of the Agar decision,
which was that the payment due on 19 or 22 April 2011 should not be treated for
the purposes of late payment penalties as a default during the tax year
2010-11. HMRC had accepted that decision. HMRC had revised the penalty charged
to Sportcal. The revised penalty amount was £4,491.74.
18.
The calculation attached to that letter showed that the payments for
months 1, 2, 5, 6, 7, 8, 9 and 10 had been made late. No penalty was due in
respect of month 1. There had therefore been seven defaults, the total amount
of the payments in question being £149,724.79. The note at the end of the
calculation stated:
“Note: Any amounts that are included in a time to
pay agreement do not count as a failure to pay on time, so long as
·
the time to pay agreement is made before the due date, and
·
you keep to the terms of the arrangement”
Arguments for Sportcal
19.
Mr Laflin referred to the factual history. He stated that the reduction
of penalty referred to in HMRC’s letter dated 11 April 2012 had reduced the
number of penalty periods to seven. He argued that seven penalty periods should
attract what he described as two per cent interest and not 3 per cent interest,
thus reducing the penalty from £4,491.74 to £2,994.49.
20.
The June payment had been an agreed late payment with Ian Miller of
HMRC, who had agreed to allow Sportcal to make the payments in three stages due
to cash flow problems. Mr Laflin questioned whether this counted as a late
payment. If not, this would reduce the amount owing to £128,840.74 at 2 per
cent, ie £2,576.82.
21.
A cheque for £23,704.54 had been sent on Friday 18 February 2011 in
respect of month 10.This would have been received by HMRC on Monday 21 February
2011 and cleared through the bank three days later. He asked whether this
counted as a late payment. He further questioned what the definition of a late
payment was. There was no clarity as to whether cleared funds were required by
the 19th day of the appropriate month, or whether a cheque was required by that
date. This cheque had been sent on the first working day after 19th February.
He submitted that it should not be classified as a late payment for penalty
purposes.
22.
If it was not late, it would reduce the amount owing to £105,133.20 at 2
per cent. This was £2,102.66.
23.
Mr Laflin also referred to the payment for month 5. The amount due was
£20,276.26. This had been sent two days late, on 21 September 2010, and had
been cleared through the bank by 24 September 2010.
24.
He referred to the current payment period having been changed to the
22nd of each month and not the 19th, to allow struggling companies more time to
pay their PAYE on time. He questioned why this had not been introduced in 2008
when many companies had been struggling at the same time and when this late
payment structure had been introduced.
25.
Whilst he accepted that Sportcal had paid its 2010-11 PAYE late on five
occasions, on one of these (made in February 2011) the payment of £23,704.54
had been made on 21 February. He submitted that it was rather harsh to be
charged interest or penalty fines for that payment.
26.
There was a huge difference between the “fine” as found and five late
payments. Further, if it were accepted that four payments should be counted as
late, this would reduce the total late tax to £84,856.94 and the penalty would
be at 1 per cent, ie £848.57. This had been the sum which he had offered, in
his letter dated 15 December 2011 responding to Miss MacDonald’s review letter,
to pay to HMRC.
27.
He accepted that Sportcal had been a week late on two occasions, 21 days
late following Christmas, and 13 days late on one occasion. This was a total of
48 days late. If this sum were to be borrowed at an APR of 10 per cent, the
cost would be £1,115.93. He criticised the system of calculation of the
penalties, and submitted that a penalty of over £3,000 more than this was
excessive.
28.
He referred to the history of Sportcal’s payments during 2010-11. In
relation to the payment due in February, he had problems with the idea of
payment if the 19th was a Saturday. He referred to previous advice that if
payments were made within three days of the due date, this would suffice. There
was a difference between what was currently on HMRC’s website and what it had
previously shown.
29.
With reference to the explanation given at the hearing of the way in
which the penalties were calculated, he had no idea that this was the method.
He accepted that he had not looked at the website to see this. He emphasised
that the previous advice from HMRC had been that payments could be delayed as
long as they were made within two or three days of the due date.
30.
He referred to the history of the late payments; he had been engaged in
a lot of business overseas, and Sportcal had had cash flow problems. He
accepted the point made in HMRC’s argument that the law was inflexible. He
expressed surprise that there was no flexibility in relation to late payments.
He requested that Sportcal should be subjected to penalty for four of the eight
periods. He also thought that HMRC’s website was very confusing in its
description of the calculation of the penalties. At the end of his reply he
pointed out that he had not received a copy of the bundle for the hearing.
Arguments for HMRC
31.
Mr Lloyd referred to Sportcal’s grounds of appeal as appearing from the
correspondence:
(1)
Sportcal felt that there had been no warning of the size and scale of
the fines, and considered the penalties to be disproportionate and excessive in
relation to the lateness of its PAYE payment;
(2)
There had been no notification that the payments were late, and no
notification that a penalty was due;
(3)
As Sportcal had been in arrears with its payments, it had agreed,
through an agreement with an official of HMRC, that the month 2 and month 3
payments would be made in accordance with the terms of that agreement;
(4)
The penalty made no allowance for the fact that Sportcal always paid the
correct amount of PAYE and in some cases only paid a day or two late. It was
suggested that Sportcal would accept the penalties on those four payments which
had been a week or more late;
(5)
HMRC was being intransigent in not reducing those penalties incurred
when the payments had been just a day or two late.
32.
Mr Lloyd commented that if there were seven defaults in a year, the
percentage would be 3 per cent and not 2 per cent as Mr Laflin had argued; this
was clear from Schedule 56. (Mr Laflin interjected that this did not match the
information shown in Miss MacDonald’s letter; we comment on this below.)
33.
Mr Laflin had raised the question of what constituted a late payment. Mr
Lloyd referred to the month 2 payment. This had been made under a time to pay
agreement, but the agreement had been concluded after the due date for that
payment. In relation to the issue of being “slightly late” with a payment,
there was no flexibility; HMRC needed to have received the payment cheque on
the 19th of the month. This was made clear by HMRC’s website. Mr Lloyd
submitted that as regards the specific instances of Sportcal’s “slightly late”
payments, there was no flexibility and that therefore they were late.
34.
HMRC had issued seven late payment notices confirming the PAYE payments
had been made late; these were P101 notices, issued as automated letters. These
notices did not refer to penalties, but the letter dated 28 May 2010 notifying
Sportcal of the first late payment of PAYE for 2010-11 had done so. This letter
warned of action being taken against employers who did not pay PAYE on time,
and gave details the location on HMRC’s website where information on penalties
could be found.
35.
Mr Lloyd referred to Sportcal’s previous payment history; we comment
below on whether this assists the tribunal in such cases.
36.
He referred to the various telephone and other contacts made by HMRC
officers to inform Sportcal about its late payments. Warnings had been given by
telephone, and an officer had visited Sportcal’s premises to ensure payment of
one month’s PAYE.
37.
He referred to the publicity which had been given in relation to the new
penalty system coming into operation.
38.
There had been nothing to convince HMRC that Sportcal had had a
reasonable excuse for not making its payments on time, nor had any convincing
evidence been produced to demonstrate this. Mr Lloyd referred to paragraph
16(2)(a) of Schedule 56, relating to insufficiency of funds not amounting to a
reasonable excuse unless attributable to events outside the person’s control.
39.
Mr Laflin had argued that the penalties were excessive. Mr Lloyd
submitted that the penalty scale was set out in the legislation, and that the
penalties were staged and proportionate. Cash flow was one of the normal
hazards of trading. Employers should make arrangements so that they could pay
on time. Time to pay arrangements were available, and payments under these (if
the agreement was made before the due date for payments made pursuant to it)
were not counted for penalty purposes.
40.
The position had been made clear in HMRC’s Employer Bulletins. Sportcal
did not dispute that it had made its payments late; its only dispute was as to
the degree of lateness. Sportcal has had no reasonable excuse, except in
relation to one payment under its time to pay agreement.
41.
Notice had been given in the “penalty warning letter” and on HMRC’s
website. There was an obligation on employers to keep up to date. Mr Lloyd
referred to the phone calls and visit from HMRC; these had been specific
warnings in addition to the general information provided. The continuing cycle
of delays should be taken into account. As there was no reasonable excuse,
Sportcal’s appeal should be dismissed.
Discussion and conclusions
42.
As a preliminary point, we deal with the lack of provision of a bundle
for Sportcal. We are unaware of the reasons for this, but as mentioned in the
announcement of our decision at the hearing, we consider that HMRC should
ensure that appellants in hearings of this nature are provided in advance with
bundles, to enable them to prepare properly for the hearing. We did not think
that Sportcal had been unduly disadvantaged by the lack of a bundle, as it was
clear that Mr Laflin had carefully prepared his arguments and was familiar with
the correspondence. We therefore continued with the process of arriving at and
announcing our decision, rather than considering whether to adjourn the hearing
for further arguments. If Mr Laflin had informed us at an earlier stage in the
hearing that he had not received the bundle, we would have had the opportunity
to consider whether to approach matters in a different way.
43.
The relevant parts of paragraph 6 of Schedule 56 provide:
“6—
(1) P is liable to a penalty, in relation to
each tax, of an amount determined by reference to—
(a) the number of defaults that P has made
during the tax year (see sub-paragraphs (2) and (3)), and
(b) the amount of that tax comprised in the
total of those defaults (see sub-paragraphs (4) to (7)).
(2) For the purposes of this paragraph, P makes
a default when P fails to make one of the following payments (or to pay an
amount comprising two or more of those payments) in full on or before the date
on which it becomes due and payable—
(a) a payment under PAYE regulations;
(b) a payment of earnings-related contributions
within the meaning of the Social Security (Contributions) Regulations
2001 (SI 2001/1004);
. . .
(3) But the first failure during a tax year to make
one of those payments (or to pay an amount comprising two or more of those
payments) does not count as a default for that tax year.
(4) If P makes 1, 2 or 3 defaults during the tax
year, the amount of the penalty is 1% of the amount of the tax comprised in the
total of those defaults.
(5) If P makes 4, 5 or 6 defaults during the tax
year, the amount of the penalty is 2% of the amount of the tax comprised in the
total of those defaults.
(6) If P makes 7, 8 or 9 defaults during the tax
year, the amount of the penalty is 3% of the amount of the tax comprised in the
total of those defaults.”
The version of this paragraph which applied before 25
January 2011 was different in certain respects, but those differences are not
material to the matters covered by the present appeal.
44.
Thus every late payment after the first counts as a “default”. (The
first payment will give rise to a penalty if it is made more than six months
late, but this is not relevant to Sportcal’s appeal.) A payment of PAYE is late
if made after the due date for such payments. Under regulation 69 of the Income
Tax (Pay As You Earn) Regulations 2003 (SI 2003/2682), the tax paid otherwise
than by electronic payments is to be paid within 14 days after the end of the
tax period, ie on the 19th of each month. (Tax paid by electronic payments must
be paid within 22 days of the end of the tax period, ie by the 22nd of the
relevant month.) Regulation 69 does not provide a definition of “paid” for non-electronic
payments. What counts as payment is therefore a matter of HMRC’s practice. On
their website, under the heading “How to pay PAYE/Class 1 National Insurance
contributions”, they state:
“PAYE/Class 1 NICs payment deadlines and late
payment penalties
PAYE/Class 1 NICs electronic payment deadline
Your cleared payment must reach HMRC's bank account
no later than the 22nd of the month following the end of the tax month or
quarter to which it relates.
If you are a large employer (250 or more employees) you
must pay electronically.
PAYE/Class 1 NICs postal payment deadlines
If you are not required to pay electronically please
ensure your cheque reaches HMRC no later than the 19th of the month following
the end of the tax month or quarter to which it relates.”
45.
It is clear from this statement, made available generally to employers,
that for non-electronic payments HMRC do not require cleared funds to have
reached them by the due date. It is also made clear that the cheque must reach
HMRC by the 19th of the “payment month”. HMRC do not state within the relevant
part of their website what should be done where the 19th falls on a Saturday,
Sunday or Bank Holiday, but presumably the payment must be sent in time to
arrive before the weekend. (It would be helpful if an explicit statement of the
position could be made on the website.) Under the sub-heading “Paying PAYE by
post” within the above website page, HMRC state:
“To allow for possible postal delays (for which HMRC
is not responsible) please allow at least three working days for the payment to
reach them.”
46.
Mr Laflin’s understanding that the payment periods had been changed
generally to the 22nd of the relevant month was incorrect. That date is only
applicable to electronic payments.
47.
There were two aspects of Mr Lloyd’s submissions which appeared to be
based on an incorrect approach to Schedule 56 cases. The first was his
reference to Sportcal’s PAYE payment record in previous years. We regard it as
irrelevant to refer to earlier periods. Schedule 56 imposes late payment
penalties on a year by year basis. It does not assist to refer to earlier
periods not subject to appeal, and may appear prejudicial. We have therefore
ignored all the evidence relating to previous periods, and Mr Lloyd’s reference
to that evidence in his submissions.
48.
The second aspect is his reference to the absence of a reasonable excuse
except in relation to the time to pay agreement. We should emphasise that the
relieving provisions in paragraph 10 of Schedule 56 have nothing to do with
reasonable excuse; the employer either complies with that paragraph and obtains
the relief, or does not do so and becomes liable to a penalty in respect of the
amount or amounts covered by the agreement. We set out the relevant part of
paragraph 10:
“Suspension of penalty during currency of
agreement for deferred payment
10—
(1) This paragraph applies if—
(a) P fails to pay an amount of tax when it
becomes due and payable,
(b) P makes a request to HMRC that payment of
the amount of tax be deferred, and
(c) HMRC agrees that payment of that amount may
be deferred for a period (“the deferral period”).
(2) If P would (apart from this sub-paragraph)
become liable, between the date on which P makes the request and the end of the
deferral period, to a penalty under any paragraph of this Schedule for failing
to pay that amount, P is not liable to that penalty.”
Thus, provided payment is made in accordance with the
terms of the time to pay agreement and none of the payments due under it was
due and payable before it was requested, there will be no penalty in respect of
the payments covered by the agreement. The question of reasonable excuse
(covered by paragraph 16 of Schedule 56) does not arise unless there is a
failure to adhere to the terms of the agreement, bringing the late payment or
payments back into the normal Schedule 56 regime.
49.
The wording of HMRC’s letter dated 15 August 2011 (paragraph 11 above)
was therefore incorrect; it should have stated: “Time to pay proposals agreed
after the payment date do not [our emphasis] preclude penalty charges.”
50.
HMRC’s Employer Bulletin, April 2010, Issue 35, provided information on
avoiding late payment penalties under the system being introduced for tax
periods starting on or after 6 April 2010. The article referred to the times when
payment was required, and distinguished between electronic payments, to be paid
by the 22nd of each month (unless the 22nd was a non-working day, in which case
payment should be made earlier), and other payments, which had to be received
by HMRC by the 19th of the relevant month. The article gave limited information
about the penalties, but gave HMRC’s website reference to the explanation of
the penalty system. Issues 36 and 37 of the Employer Bulletin also provided
information on avoiding late payment penalties.
51.
In his letter to HMRC dated 9 September 2011, Mr Laflin stated:
“I am deeply shocked and surprised by the scale and
the size of these fines. At no time have we ever been warned of the scale or
the size of these fines and in the light of our payment schedule I believe them
to be excessive and disproportionate to the lateness of our payments.”
52.
We find that the information in the Employer Bulletins was provided to
Sportcal in the normal way. Further, HMRC telephoned Sportcal on several
occasions to make it aware of the need to pay its PAYE liabilities and the
potential liability to penalties.
53.
HMRC’s website gives information on the calculation of penalty charges
for late monthly and quarterly PAYE payments. Mr Laflin indicated that the
information currently on the website was not the same as it had been when he
had consulted the website. There was no evidence of the date on which he had
done so. We are unable to check how any previous version of the website
commentary described the calculation of penalties, as there is no access to
former versions. However, as Sportcal had been made aware through Issue 35 of the
Employer Bulletin (as well as by HMRC’s warning letter after the first late
payment) that penalties would arise if payments were made late, it should have
been conscious that repeated lateness would result in greater penalties being
imposed after the end of the tax year, whether or not it should have known the
exact basis on which those penalties would be calculated.
54.
According to HMRC’s schedule of late payments for 2010-11, nine payments
were late. The first, not treated as a default within paragraph 6 of Schedule
56, can be deducted from the total. Further, the payment for month 3 made under
the time to pay agreement may also be deducted. As the month 2 payment became
due before the request to Mr Miller of HMRC on 15 July 2010 for time to pay, it
cannot be deducted from the total, despite being covered by the agreement. As a
result, the total number of defaults was seven. We do not accept Mr Laflin’s
submission that the number of defaults should be regarded as five, or even
four. We are satisfied on the evidence that, for the purposes of Schedule 56,
there were seven defaults. The applicable penalty percentage is therefore 3 per
cent rather than the lower percentages mentioned in argument by Mr Laflin.
55.
Mr Laflin argued that some of the payments had been made only slightly
late. However, as shown above, there is no allowance for limited lateness; the
payments must arrive by the 19th of the relevant month if penalties are to be
avoided. According to the schedule produced by HMRC, none of the payments was
received only one day late. Mr Lloyd calculated the average as being 14 days
late. That calculation is open to debate, due to the payments for months 2 and
3 having been made under the time to pay agreement; although (for the reasons
given above) the late payment for month 2 counts as a default, the late payment
for month 3 does not. However, the degree of lateness is not relevant; if a
payment is late, it enters into the penalty calculation (unless it is the first
late payment in the relevant tax year). A payment is either late or not late;
there is no intermediate position. Put another way, there is no flexibility in
the application of penalties under Schedule 56 (other than for “special
reduction” under paragraph 9 of Schedule 56).
56.
Mr Laflin argued that the level of the penalty was disproportionate, and
that it did not equate to a reasonable interest charge. We do not consider it
correct to regard the penalty as having any relationship with a charge to
interest. Under Schedule 56, a late payment incurs a potential liability to
penalty irrespective of the period of lateness. However, if it is made over six
months late, or over twelve months late, further penalties are incurred. The
penalty is also calculated by reference to the amount of tax in default, and
not (if greater) the total tax due for the month in question. We are satisfied
that the penalties under Schedule 56, being calculated on a scale based on
these factors, are not disproportionate. They are imposed with the objective of
ensuring compliance by employers with their obligation to make timely payments
of PAYE to HMRC, and the facility for employers to escape penalties when they
reach a time to pay agreement with HMRC because of financial difficulties is a
further factor contributing to the proportionality of the system. We accept the
views of the Tribunal in Agar on the question of proportionality,
considered at paragraphs 42 to 46 of that decision.
57.
We are satisfied that the penalty (as subsequently adjusted in the light
of the Agar decision) is properly due in the sum of £4,491.74 as shown
in HMRC’s revised calculation attached to their letter dated 11 April 2012.
Under paragraph 16(2) of Schedule 56, insufficiency of funds does not
constitute a reasonable excuse unless attributable to events outside Sportcal’s
control. No claim was made that any such events had occurred. Sportcal did not
put forward any other basis for any claim that there had been a reasonable
excuse for late payment. We therefore find that there is no reasonable excuse
for any of the payments being made late. We further find that there are no
special circumstances (within paragraph 9 of Schedule 56) to justify any
reduction of the penalty.
58.
As mentioned in our announcement of our decision at the hearing, we
consider that it would be desirable for more information about the penalty
system to be included in the first notification (ie warning) letter, and that
the importance of this letter should be made clear. We think it likely that
providing such information would encourage employers to change their approach
to their payment arrangements, or would at least reduce the number of cases in
which employers pursue appeals on grounds that they have not been informed
before receiving the penalty notice after the end of the tax year concerned. We
emphasise that this is a matter of HMRC’s practice, and does not affect the
liability of the employer to the penalties found to be due.
59.
In our announcement we also made reference to the website information
concerning the calculation of the penalties. We have since had the opportunity
to consider the wording of the information under the heading “Penalty charges
for late monthly and quarterly PAYE payments” on the HMRC website page
mentioned in Issue 35 of the Employer Bulletin. Whatever this may have shown in
any previous version, we are satisfied that it makes the position clear and is
related specifically to the terms of paragraph 6 of Schedule 56. However, we
think that the way in which the description was given in Miss MacDonald’s
review letter was unsatisfactory, as this implied that seven defaults would
incur a penalty of 2 per cent rather than 3 per cent. The reason for this
misleading impression is the inclusion of the first late payment, rather than
making the distinction by reference to paragraph 6 of Schedule 56 between “defaults”
and the number of occasions of late payment within the relevant tax year. As we
have indicated above, the first late payment is not to be treated as a
“default” when calculating the overall penalty for the year. Sportcal had eight
late payments for 2010-11, and therefore seven defaults. We recommend that in
correspondence HMRC should show the scale in the same way as it is currently
shown on their website.
60.
In accordance with paragraph 15(1) and (2) of Schedule 56, we affirm
HMRC’s decisions that a penalty is payable in respect of 2010-11 and that the
amount of that penalty is £4,491.74. We therefore dismiss Sportcal’s appeal.
Right to apply for permission to appeal
61.
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.
JOHN CLARK
TRIBUNAL JUDGE
RELEASE DATE: 22 August 2012
