[2013] UKFTT 139 (TC)
TC02568
Appeal number:
TC/2012/06807
PAYE - appeal against the
penalty imposed for the late payment of PAYE- Schedule 56 Finance Act 2009- insufficiency
of funds – illness of administrator- appeal allowed in part- appellant had
acted as a careful and competent businessman in the face of severe and
unexpected financial difficulties and HMRC officer who visited monthly to
collect PAYE failed to mention accruing penalty
FIRST-TIER TRIBUNAL
TAX CHAMBER
|
|
BALE GROUP
LIMITED
|
Appellant
|
|
|
|
|
|
|
- and -
|
|
|
|
|
|
|
|
THE
COMMISSIONERS FOR HER MAJESTY’S
|
Respondents
|
|
|
REVENUE &
CUSTOMS
|
|
|
TRIBUNAL:
|
JUDGE SANDY RADFORD
|
|
|
RICHARD CORKE
|
Sitting in public at Exeter on 1 November 2012
Mr R Clutterbuck of Francis
Clark LLP accountants for the Appellant
Mr D Bradley, officer of HM
Revenue and Customs, for the Respondents
© CROWN COPYRIGHT
2013
DECISION
1.
This is an appeal against the penalty of £6,756 imposed for 6 late
payments of PAYE during tax year 2010/11.
Background and facts
2.
The appellant employs over one hundred people in its waste solutions
business.
3.
On 19 October 2011 HMRC issued penalty determinations against the appellant
in amount of £26,265.94 as a result of the appellant making late payments of
its PAYE for each month of the tax year 2010/11.
4.
The appellant appealed against the penalties on 2 November 2011. HMRC replied on 9 November 2011 stating that it was unable to accept the grounds for
appeal as a reasonable excuse and offering a review of the case.
5.
As a result of the decision in the Agar case HMRC issued a
revised penalty notice reducing the penalty to £22,717.68.
6.
On 29 May 2012 the appellant requested a statutory review of the
decision and prior to the review taking place submitted additional information.
7.
The conclusion of the review was that a reasonable excuse existed for
months 1, 2 and 3 and the penalty was reduced to £11,928.26.
8.
The appellant appealed to the Tribunal on 2 July 2012 and a further review of the case found that the appellant had reached agreement with HMRC to pay month
10 late. As a result the penalty was reduced to £6,756.
9.
Mr Clutterbuck explained that in May 2010 he had been asked by the bank
to step in and help the appellant which was in a mess. Mrs Bale who was
responsible for much of the administration had had a period of illness and the
appellant’s invoice factoring had been significantly reduced.
10.
In March 2010 the Royal Bank of Scotland, in restricting the invoice
discounting facility which the appellant used, took away some £85,000 from its
credit facility. Prior to this NatWest Bank had reduced the appellant’s
overdraft facility by £100,000.
11.
These actions were taken by the banks as a result of the appellant’s
loss of significant business accounts. The loss of the turnover from these
accounts resulted in further erosion from the appellant’s invoice discounting
facility.
12.
Mr Morgan, who was just appointed a director of the appellant in May
2010, gave evidence that previous to October 2011 the appellant had experienced
two terrible years. It lost one-third of its business and sustained significant
losses.
13.
The directors remortgaged their homes and took only a minimal salary and
in all lent the appellant some £500,000 to keep it going.
14.
Mr Morgan explained that during the 2010/2011 tax year the appellant had
received regular visits from an officer of HMRC whose sole task was to collect
the PAYE payments due. The officer always asked how much would be due the
following month and when payment was likely to be ready. The appellant and the
officer would agree a date for payment of the next instalment and this
arrangement was always met by the appellant. This was accepted by the officer
who at no time made any comment about the impact of this arrangement or the
possibility of penalties.
15.
In giving evidence Mr Morgan emphasised that the officer had made it
quite clear by both his actions and his words when he called that provided that
the appellant paid the PAYE when he called the next time everything would be
fine.
16.
Mr Morgan denied that he had ever been warned by HMRC of any potential
penalty.
The legislation
17.
Penalties for the late payment of monthly PAYE amounts were first
introduced for the tax year 2010/11. The legislation is contained in Schedule
56 to the Finance Act 2009 (“Schedule 56”). Schedule 56 covers penalties for
non- and late payment of many taxes: paragraph 1(1) (which applies to all
taxes) states that a penalty is payable where the taxpayer fails to pay the tax
due on or before the due date.
18.
Paragraph 6 (which relates only to employer taxes such as PAYE) states
that the penalty due in such a case is based on the number of defaults in the
tax year, though the first default is ignored. The amount of the penalty
varies as provided by sub-paragraphs (4) to (7):
(4)
If P makes 1, 2 or 3 defaults during the tax year, the amount of the penalty is
1% of the amount of 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 tax comprised in the total amount 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 tax comprised in the total amount of those defaults.
(7)
If P makes 10 or more defaults during the tax year, the amount of the penalty
is 4% of the amount of tax comprised in those defaults.
In this and other paragraphs of Schedule 56 “P” means a
person liable to make payments.
19.
Under paragraph 11 of Schedule 56 HMRC is given no discretion over
levying a penalty:
11(1) Where P is liable to a
penalty under any paragraph of this Schedule HMRC must –
(a)
assess the penalty,
(b)
notify P, and
(c)
state in the notice the period in
respect of which the penalty is assessed.
(3)
An assessment of a penalty under any paragraph of this Schedule—
(a)
is to be treated for procedural purposes in the same way as an assessment to
tax (except in respect of a matter expressly provided for by this Schedule),
(b)
may be enforced as if it were an assessment to tax, and
(c)
may be combined with an assessment to tax.
20.
Paragraphs 13 to 15 of Schedule 56 deal with appeals. Paragraph 13(1)
allows an appeal against the HMRC decision that a penalty is payable and
paragraph 13(2) allows for an appeal against the amount of the penalty.
Paragraph 15 provides the Tribunal’s powers in relation to an appeal which is
brought before it:
(1)
On an appeal under paragraph 13(1)
that is notified to the tribunal, the tribunal may affirm or cancel HMRC’s
decision.
(2)
On an appeal under paragraph 13(2)
that is notified to the tribunal, the tribunal may-
(a)
affirm HMRC’s decision, or
(b)
substitute for HMRC’s decision
another decision that HMRC had the power to make.
(3)
If the tribunal substitutes its
decision for HMRC’s, the tribunal may rely on paragraph 9-
(a)
to the same extent as HMRC…[…],or
(b)
to a different extent, but only if
the tribunal thinks that HMRC’s decision in respect of the application of
paragraph 9 was flawed.
21.
Paragraph 9 (referred to in paragraph 15) states:
(1)
If HMRC think it right because of special circumstances, they may reduce the
penalty under any paragraph of this Schedule.
(2)
In sub-paragraph (1) “special circumstances” does not include –
(a) ability
to pay, or
(b) the
fact that a potential loss of revenue from one taxpayer is balanced by a
potential over-payment by another.
(3)
In sub-paragraph (1) the reference to reducing a penalty includes a reference
to-
(a) staying
a penalty, and
(b) agreeing
a compromise in relation to proceedings for a penalty.
22.
Paragraph 16 contains a defence of reasonable excuse, but an insufficiency
of funds is not a reasonable excuse unless attributable to events outside P’s
control. Nor is it such an excuse where P relies on another person to do
anything unless P took reasonable care to avoid the failure; and where P had a
reasonable excuse for the failure but the excuse has ceased, P is to be treated
as having continued to have the excuse if the failure is remedied without
unreasonable delay after the excuse has ceased.
Appellant’s submissions
23.
Mr Clutterbuck submitted that there were three reasons for the late
payments. Firstly that the financial position of the appellant had been
misunderstood and the case of Customs and Excise Commissioners v Steptoe [1992]
BVC 142 was quite relevant.
24.
Mr Clutterbuck referred to the case of Keith Joseph-Lester v HMRC [2011] UKFTT 114 (TC) in which Mr Lester won his appeal against HMRC as a result of
being able to show that at all times he had acted as a responsible business man
in trying to meet his liabilities to HMRC.
25.
He submitted that the appellant had done everything it possibly could to
save itself from liquidation and had managed to meet all of its direct and
indirect tax liabilities through additional borrowings and prudent management.
26.
He submitted that in the case of Steptoe the Court of Appeal had
accepted that although an insufficiency of funds can never of itself constitute
a reasonable excuse, the cause of that insufficiency being the underlying
reason for the taxpayer’s default might amount to a reasonable excuse. He
submitted that the underlying reason for the appellant’s default was the
unexpected loss of one-third of its business and the unexpected actions of its
banks in reducing the appellant’s overdraft and credit facility.
27.
Secondly he submitted that the HMRC officer who visited the appellant to
collect the PAYE had a duty of care to inform the appellant of the potential
penalty position. Mr Clutterbuck produced a copy of the Taxpayers Charter which
promised to provide the taxpayer with relevant information and stated “We want
to give you a service that is even-handed, accurate and based on mutual trust
and respect. We want to make it easy for you to get things right.”
28.
He submitted that in this matter HMRC had fallen far short of their duty
of care.
29.
Thirdly he pointed out that the penalty warning letter had been sent to
the wrong address.
HMRC’s submissions
30.
Mr Bradley submitted that HMRC had accepted that the loss of business
specifically affected the months 1, 2 and 3 and similarly other specific events
such as the banks restricting the invoice discounting facility and reducing the
overdraft. As a result HMRC had accepted that the appellant had a reasonable
excuse for months 1, 2 and 3. However after these months he submitted that HMRC
would have expected the appellant to contact HMRC before the due date to
request time to pay.
31.
He submitted that whilst HMRC accepted that the appellant had suffered
considerable financial difficulties, these difficulties had existed for some
time. Referring to the case of Joseph-Lester he submitted that a
competent reasonable businessman would have taken appropriate steps to comply
with the PAYE deadlines.
32.
He submitted that in order for insufficiency of funds to qualify as a
reasonable excuse there must be a specific event beyond the appellant’s
control. He submitted that the downturn in the economy had affected virtually
all businesses to varying extents and did not therefore constitute a reasonable
excuse.
33.
As to the HMRC visiting the appellant and failing to warn it of
potential penalties, Mr Bradley submitted that HMRC was under no obligation to
warn of penalties.
34.
He submitted that in addition to the visits by the HMRC officer HMRC had
tried to contact the appellant by telephone each month.
35.
He submitted that the new penalty regime had been well publicised by way
of and extensive marketing campaign.
36.
He submitted that in the case of Dina Foods Limited v HMRC [2011] UKFTT 709 (TC) Judge Berner stated:
“We do not
consider that the lack of awareness of Dina Foods Limited of the penalty regime
is capable of constituting a special circumstance. In any event, having
considered the evidence of the information provided by HMRC concerning the
introduction of PAYE and NIC penalties, we are of the view that no reasonable
employer, aware generally of its responsibilities to makle timely payments of
PAYE and NIC amounts due, could fail to have seen and taken note of at least
some of the information published and provided by HMRC.”
Findings
37.
We accepted that the HMRC officer who visited the appellant lulled the
appellant into a false sense of security by accepting the dates the appellant
agreed to pay the PAYE without mentioning that those late dates would give rise
to a penalty.
38.
We found that the appellant had acted carefully and competently as a reasonable
businessman and had tried to pay all its bills and keep its business going.
39.
We found Mr Morgan and Mr Clutterbuck’s evidence straightforward and
honest.
40.
We found that the appellant had suffered severe financial difficulties.
Mr Bradley made us aware of the fact that the appellant had contacted the HMRC
business support team in the past and so should have done so again.
41.
However we found that the appellant had quite genuinely been unaware of
the new penalty regime.
42.
However this lack of knowledge cannot be totally accepted as a reasonable
excuse for the lateness of the payments.
43.
As a result of our finding that the appellant had acted as a reasonable
competent businessman in the circumstances and in recognition of the failure of
the HMRC officer to alert the appellant to the fact
that it was running up penalties and its severe
financial difficulties largely outside its
control which continued until October 2011, in particular the reduction in its
overdraft and its credit facility, we have decided that the penalty in respect
of months 4, 5 and 6 should also be cancelled.
Decision
44.
The appeal is allowed in part. The penalty in respect of the late
payment of PAYE in months 4, 5 and 6 is hereby cancelled. The penalty in
respect of the remaining three late payments is hereby confirmed.
45.
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.
SANDY
RADFORD
TRIBUNAL JUDGE
RELEASE DATE: 22 February 2013
