Eclipse Generic Ltd v Revenue & Customs [2013] UKFTT 248 (TC) (18 April 2013)
DECISION
1. This was
the appeal by Eclipse Generic Limited (“the company”) against a penalty of £600
for late filing of its 2010-11 Employer’s Annual Return (“P35”).
2. The
Tribunal decided to allow the appeal and set aside the penalty of £600.
The
late appeal
3. The review
conclusion letter was dated 10 August 2012. The appeal to the Tribunal was made
on 11 September 2012, slightly later than the statutory time limit of 30 days.
RSM Tenon, the company’s agent (“the agent”) has said that it did not receive
the review conclusion letter until 11 September 2012, the day on which the appeal
was made to the Tribunal.
4. The
Tribunal considered the overriding objective as set out in Rule 2 of the
Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 and also the
case law on late appeals, and decided to allow the company to make a late
appeal.
The law
5.
The statutory provisions, so far as relevant to this case are set out
below.
6.
Regulation 73 of the Income Tax (PAYE) Regulations 2003is headed “annual
return of relevant payments liable to deduction of tax (Forms P35 and P14).”
7.
Regulation 73(1) requires that an employer “must deliver to the Inland
Revenue” its P35 return on or before 19 May following the end of a tax year.
8.
Regulation 205 states that employers “must deliver a relevant annual
return by an approved method of electronic communication.”
9.
Regulation 192 states that “for the purpose of these Regulations,
information is taken to have been delivered to an official computer system by
an approved method of electronic communications only if it is accepted by that
official computer system.”
10.
Regulation 73(10) states that Section 98A of Taxes Management Act 1970
(“TMA”) applies if the obligation to deliver returns, set out in Reg 73(1), is
not complied with.
11.
TMA s 98A provides for fixed penalties which apply “where this section
applies in relation to a provision of regulations, any person who fails to make
a return in accordance with the provision.”
12.
The taxpayer’s right of appeal against the penalty and the Tribunal’s
powers are at TMA s 100B.
13.
The taxpayer can appeal a penalty on the grounds of reasonable excuse.
The relevant provisions are set out at TMA s 118(2), which, 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.”
The
evidence
14.
The Tribunal was provided with the correspondence between the parties,
and between the parties and the Tribunals Service. In addition, HMRC supplied
a print-out from the Government Gateway relating to the company’s PAYE and
headed “PAYE for Employers”.
Facts
not in dispute
15.
The company was due to file its 2010-11 P35 on or before 19 May 2011.
The company’s parent, Mawdsleys, tried to file the return before the due date.
16.
On 3 August 2011 Mawdsleys made a call to HMRC’s employer helpline and
was told that the company’s P35 had not been received by HMRC.
17.
On 4 August 2012 Mawdsleys successfully submitted the company’s return.
Submissions
for and on behalf of the company
18.
Mawdsleys say that they submitted the company’s return “on the Monday 4
April and confirmations were received to confirm that they had been accepted”.
19.
In relation to their conversation with HMRC on 3 August 2011 they say:
“when Mr Tony Ginge,
who we spoke to, was informed of the date [the P35s for the companies in the
Mawdsleys group] were sent, he suggested that it was a fault of your [ie HMRC’s]
interface as that was the date you were having an update on your system and
suggested we send them again which we did on 4 August 2011.”
20.
Mawdsleys also say that “our file, which contained the confirmations,
has been mislaid, which means we cannot provide proof of receipt.”
21.
The agent says that the appeal should be allowed because:
(1)
the burden is on HMRC to prove a default;
(2)
the company reasonably believed that the return had been submitted; and
(3)
the penalty was excessive because HMRC could have sent out the penalty
sooner. In its Notice of Appeal, the agent relies on various dicta from
other Tribunal cases. These are not attributed, but at least one of these
derives from the case of Hok v R&C Commrs [2011] UKFTT(433) (“Hok”),
where the First-tier Tribunal found that HMRC had acted unfairly by delaying
the issue of a penalty for late submission of a P35.
HMRC’s
submissions
22.
HMRC say that the P35 was not filed correctly and that a “failure
response” was sent to Mawdsleys by the HMRC computer system. They produce the
Government Gateway print out as evidence. The details on the printout include
the following:
(1)
On 5 April 2011 at 15.37, under the heading “form type” the printout
states “IR PAYE EXB”; under the heading “status” are the words “failure
response received from Department”.
(2)
On 30 June 2011, under the heading “form type” the printout reads
“IR-PAYE-EXB”; under the heading “status” is “Success – Document deleted from
gateway.”
(3) On 4 August 2011, under the
heading “form type” is “IR-PAYE-EOY” and under “status” is “Success – Document
deleted from gateway.”
23.
HMRC say that the HMRC system only allows each P35 return to be filed
once, so the fact that the agent could file the P35 on 4 August 2011 means that
it cannot have been filed earlier.
24.
They also say that the company has not put forward any evidence to
support its case that it reasonably believed the return had been submitted on 4
April 2011. Furthermore, it should have been alerted by the “failed
transmission” message. As a result, HMRC say the company does not have a
reasonable excuse.
25.
In relation to unfairness, HMRC say that when Hok was appealed to
the Upper Tribunal as HMRC v Hok [2012] UKUT 363(TC), that Tribunal
overturned the decision of the First-tier Tribunal on the grounds that it had
“acted beyond its jurisdiction in discharging the penalties”.
Further
findings of fact
26.
The Tribunal’s first task is to make further findings of fact.
Whether the return was
successfully filed before 4 August 2011
27.
The first question is whether the return was successfully filed before
August 2011.
28.
HMRC say that the HMRC system only allows each P35 return to be filed
once, so the fact that the agent could file the P35 on 4 August 2011 means that
it cannot have been filed earlier. The company does not dispute this.
29.
The Tribunal accepts as a fact that HMRC’s statement that their computer
system can only accept a return on a single occasion, and that it was not
accepted before 4 August 2011.
30.
PAYE Regulation 192 states that “for the purpose of these Regulations,
information is taken to have been delivered to an official computer system by
an approved method of electronic communications only if it is accepted by that
official computer system.” The consequence of this finding of fact is therefore
that the return was not delivered until 4 August 2011 and was thus late.
Whether there was a
computer upgrade on 4 April 2011 and if so, its consequences
31.
Mawdsleys believed they had filed the return on Monday 4 April 2011.
HMRC say that the company failed to file the return at 15.37 on 5 April 2011.
32.
Mawdsleys also say they were told by a specific named employee of HMRC,
one Tony Ginge, to whom they spoke on 3 August 2011, that on 4 April there was
an update to the HMRC system.
33.
HMRC do not provide any evidence either about this call, or the upgrade.
Specifically:
(1)
They do not deny that the call took place.
(2)
They do not provide notes of telephone calls between Mawdesleys and
HMRC. The Tribunal notes that this is unusual, as these notes are routinely
provided as evidence in Tribunal hearings. In this case both the name of the
HMRC employee and the date are available, making it relatively easy to trace
the call.
(3) They do not deny Mawdsleys’
statement that there was an HMRC computer update on 4 April 2011.
34.
On the basis of Mawdsleys’ uncontested evidence, the Tribunal therefore
finds that there was a computer update on 4 April 2011.
35.
Further, Mr Tony Ginge attributed the company’s P35 filing failure to
the upgrade of HMRC’s system. This too is uncontested by HMRC.
36.
The Tribunal therefore makes a further finding of fact that the cause of
the failure to file the P35 was HMRC’s computer upgrade on 4 April 2011.
Whether HMRC issued a
“failed transmission” notice to the company
37.
HMRC say that the company was provided with a “failed transmission” notice,
and provide as evidence the printout reading “failure response received from
Department.”
38.
However, the Government Gateway printout does not support HMRC’s case.
Although the Tribunal have not been provided with the meaning of the
abbreviations used, it is reasonably to infer that the P35 form type is
“IR-PAYE- EOY”. There was no “failed transmission” message on 5 April 2011 for
a P35 – instead, it was given for a form “IR-PAYE-EXB”.
39.
HMRC have therefore not provided any evidence to support its case that
it sent a failed transmission message to the company: the evidence relates to a
different type of return. The Tribunal therefore makes a finding of fact that
no failed transmission message was made in relation to the P35.
Whether a successful
confirmation receipt was provided
40.
Mawdsleys says that it received a confirmation that the company’s return
had been accepted, but has lost the file containing the confirmations.
41.
The Tribunal has already found as a fact that the return was not
successfully received by the HMRC computer. Is this fact compatible with the
receipt by the company of a document indicating that the return had been
successfully filed?
42.
Given that the HMRC computer was undergoing an upgrade, the Tribunal
accepts that it is possible that Mawdesleys received a document which they
reasonably believed indicated that P35 had been successfully filed– whether
this was sent by the Government Gateway, or by proprietary software, or by HMRC
themselves during the updating of their computer system.
43.
The Tribunal also takes into account that the evidence provided by
Mawdsleys generally is particularised, detailed and credible. It would be
inconsistent with the general tenor of their evidence to find that Mawdsleys
had invented the existence of the confirmation receipt.
44.
Having weighed the evidence, and also taking into account the fact that
no “failed transmission” message was sent to the company, the Tribunal finds as
a fact that a message was received by Mawdsleys which they understood meant the
return had been successfully filed .
Discussion
and decision
45.
On the basis of these further findings of fact, the Tribunal finds that
it was reasonable for the company to believe that the return had been
successfully submitted.
46.
That a genuine, honest and reasonable belief provides a defence in
common law has long been accepted, see Reg v Tolson (1889) 23 QBD 168, 181. In the recent case of R v Unah [2011] EWCA Crim 1837, while noting the caveat in that case that “it is only with caution
that one should seek to draw analogies with other statutory contexts where the
concept of reasonable excuse is employed”, the Court of Appeal found that a
genuine and reasonable belief was sufficient to amount to a reasonable excuse.
47.
This tribunal held, following those authorities, that a reasonable
belief may be a reasonable excuse, see Bellchambers v R&C Commrs [2012] UKFTT 204(TC). In Thakrar v R&C Commrs [2011] a differently
constituted tribunal found that while a reasonable and honest belief
potentially provided Mr Thakrar with a reasonable excuse, it found no evidence
that he actually held such a reasonable belief.
48.
In this case, too, the Tribunal finds that the company’s reasonable
belief provides it with a reasonable excuse.
49.
Thus, although as HMRC say, the case of Hok decided that the
First-tier Tribunal has no jurisdiction to discharge a penalty for the late
submission of a P35 on the grounds that the Tribunal thinks the penalty is
unfair, this is not a case which depends on an unfairness argument. Instead, it
depends on the facts of the case and on the company’s reasonable excuse, which
is based on those facts.
50.
As a result of the foregoing, the Tribunal allows the appeal and sets
aside the penalty.
51.
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: 18 April 2013
