First-tier Tribunal (Tax)

This considers an appeal against a penalty of £500 levied by the respondents for the late filing by the appellant of its Employer Annual Returns (forms P35 and P14) for the tax year 2010 – 2011. By a direction of the Tribunal dated 30 April 2012 the appeal was stood over until 60 days after the issue of its decision by the Upper Tribunal (Tax & Chancery Chamber) in the matter of Hok Ltd. That decision was released on 23 October 2012.

Income Tax (PAYE) Regulations 2003, in particular Regulations 73 and 205.

Social Security (Contributions) Regulations 2001 in particular Schedule 4 Paragraph 22.

Taxes Management Act 1970, in particular Section 98A(2) and (3); Section 100; Section 100B; and Section 118 (2).

Regulation 73(1) of Income Tax (PAYE) Regulations 2003 and Paragraph 22 of Schedule 4 of Social Security (Contributions) Regulations 2001 require an employer to deliver to HMRC a complete Employer Annual Return (Forms P35 and P14) before 20 May following the end of the tax year. In respect of the year 2010-2011. The appellant failed to submit Forms P35 and P14 until 5 October 2011. On 26 September 2011 HMRC sent the appellant a late filing penalty notice for £400 for the 4 month period 20 May 2011 to 19 September 2011. On 10 October 2011 HMRC sent the appellant a final late filing penalty notice for £100 for the period 20 September 2011 to 5 October 2011.

a) Mr. Amper who is the only employee of the appellant notes that his total duties, tax and NIC, for 2010/11 was £2,038.77 and submits that a penalty of £500 is disproportionate. It would amount to nearly one months wages.

b)  In the letter of 5 October 2011 Mr. Amper states “I have not received any reminders up until your letter of the 26^th September”.

c) Mr. Amper logged into the HMRC on 5^th and 6^th April 2011 in order to complete the appellant’s return. In completing an on-line return there is a prompt “Do you wish to file your return?” to this Mr. Amper answered “yes”. He therefore believed his return had been filed with HMRC. In fact it had been filed on his own computer and had not been submitted to HMRC. As the return had not been submitted no acknowledgement was sent by HMRC. Mr.Amper notes the loose use of the words “file” and “submit” by HMRC. He points to a letter dated 24 February 2012 from HMRC to the appellant. This letter is the conclusion of the review by HMRC. In the first bullet point on page 3 can be found the following words “I cannot therefore accept that as a small business you have not been supported with regard to your requirement to file online. In addition I note from your records that you have filed successfully online in previous years.” In addition the Tribunal notes on Page 2 of the same letter “The onus is on the employer to ensure they file a correct return by the due date.”

d) In the Notice of Appeal Mr. Amper writes “HMRC are making a penalty of £500 for my mistakenly thinking I had made a return when in fact I had not due to a misreading of their system.”

e) In a letter dated 5 October 2011 to HMRC Mr. Amper states “ I can only believe that during my attempt to submit the return I let the programme run through to the end which then stored it and I didn’t realise I had not submitted it to yourselves.”

f)  In a request for a review (by HMRC) of the decision, form SA634 dated 11 January 2012 Mr. Amper writes “I do not feel the inspector has taken enough regard of my argument and has disregarded my excuse of not being completely proficient at the use of computer online filing when I thought I had filed the copy but it only filed on my computer and was not sent to you by electronic return.”

g) I have consistently paid the owed tax and NI on time.

In respect of the appellants submissions at paragraph 5. a) and b) above the level of the penalty; whether the respondent’s failure to send a prompt reminder was unfair; and the respondent’s updated procedures are all covered in the decision of the Upper Tribunal in the case of Hok Ltd. That decision also considers whether the jurisdiction of the First-tier Tribunal includes the ability to discharge a penalty on the grounds of unfairness. At Paragraph 36 of that decision it states “…the statutory provision relevant here, namely TMA s 100b, permits the tribunal to set aside a penalty which has not in fact been incurred, or to correct a penalty which has been incurred but has been imposed in an incorrect amount, but it goes no further. …it is plain that the First-tier Tribunal has no statutory power to discharge, or adjust a penalty because of a perception that it is unfair.”

The level of the penalties has been laid down by parliament. The only other consideration that falls within the jurisdiction of the First-tier Tribunal is whether or not the appellant has reasonable excuse for his failure as contemplated by the Taxes Management Act 1970 Section 118(2). The excuses advanced by the appellant are listed above at points 5 c) to f)

In respect of 5. c) The alternating use of the words file and submit may have been confusing but clear guidance is given as to what messages should be received for successful and unsuccessful submissions of the returns. The fact that no messages were received should have alerted the appellant to the possibility that there was a potential problem and should have led him to make further enquiries.

In respect of point 5. d) and e) the appellant acknowledges he had made mistakes which resulted in the return being completed but not submitted.

In respect of point 5. f) Whilst the Tribunal has some sympathy with the appellant it is aware that in 2002 to the government announced that it was proposing to introduce an online filing system from 2010. The appellant therefore had ample warning that it would need to familiarise itself with the online filing system. The appellant successfully submitted its return for 2009-2010 online. There is ample assistance available to an Employer in the form of detailed guidance on line, and the HMRC Employers Helpline and HMRC Online forms –PAYE service which provides a demonstration of how to use the system.

PETER R. SHEPPARD

TRIBUNAL PRESIDING MEMBER

RELEASE DATE: 30 September 2013