[2013] UKFTT 602 (TC)
TC02989
Appeal number: TC/2013/01526
TYPE OF TAX – PAYE – late
submission of Employer’s Annual Return – whether scale of penalty is reasonable
, and whether penalty is unfair and should be reduced - Decision of Upper
Tribunal in Hok Ltd applies. Whether reasonable excuse for late submission of return.
Yes
FIRST-TIER TRIBUNAL
TAX CHAMBER
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TRM ELECTRONICS
LIMITED
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Appellant
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- and -
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THE
COMMISSIONERS FOR HER MAJESTY’S
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Respondents
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REVENUE &
CUSTOMS
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TRIBUNAL:
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PRESIDING MEMBER
PETER R. SHEPPARD FCIS FCIB CTA AIIT
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The Tribunal determined the
appeal on 4 October 2013 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 e-mailed to the Tribunal on
28 February 2013, and HMRC’s Statement of Case submitted on 16 April 2013 with
enclosures. The Tribunal wrote to the Appellant on 25 April 2013 indicating
that if they wished to reply to HMRC’s Statement of Case they should do so
within 30 days. A reply dated 10 May 2013 was received and considered by the
Tribunal.
© CROWN COPYRIGHT
2013
DECISION
1. Introduction
This considers an appeal against a penalty of £100 levied
by HMRC for the late filing by the appellant of its Employer Annual Returns
(forms P35 and P14) for the year 2011 – 2012.
Legislation
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).
2. Case
law
HMRC v Hok Ltd. [2012] UKUT 363 (TCC)
3. Facts
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 2011-2012 the appellant failed to submit Forms P35 and P14 until 14
June 2012. On 19 June 2012 HMRC sent the appellant a late filing penalty notice
for £100 for the period 20 May 2012 to 14 June 2012.
4. The appellant
has made lengthy submissions.
These included the following:
“On 22 April 2012 we received the resignation without
notice of a programmer …….who worked for us for 3 years. Sadly we discovered he
had destroyed files on his computer , taken up front wages, had sabotaged code
and been negligent. This had resulted in my working late almost every night,
the loss of 1,000,000 pounds of new work. We are a small company and this is a
devastating blow.
The fact is that TRM now has 3 members of staff and all
are very overloaded. On top of this an apprentice left, another member of staff
absconded without notice, we later discovered he had been arrested and his
trial is next month. Dealing with the absconder alone is a major liability
alone.”
5. The
appellants who are expert computer programmers submit that if the taxpayer and
HMRC have properly tested their software to check it works properly there
should be no need to send a test transmission.
6. The
appellant makes a number of submissions about the receipt issued by HMRC for what
they allege was a test submission. The appellant says that if a receipt is
issued it must be because HMRC received the submission and therefore have the
return. If HMRC have received something regarded as a test then the receipt
should clearly indicate this. They say they the receipt did not make clear it was
for a test submission and therefore they accepted it in good faith as
confirming they had discharged their liability to submit the annual return. They
say the receipt is either false, misleading, or non specific. However no copy
of the receipt is submitted in evidence.
7. The
appellant offers no other excuse for the late return other than it is
considered that the return had been submitted successfully on 20 April 2012
and had received a receipt for it.
8. The
appellant submits that HMRC have produced no evidence of the Appellant’s
submission of its return in either test or live mode neither have they produced
evidence of their acknowledgements.
9. HMRC
submit the appellant has been an employer since 26 September 1994, they have
been filing their returns online successfully for a number of years and
therefore should be familiar with the process.
10. HMRC submit that although
the e-mail sent for a successful submission is the same whether it is a test or
live submission the appellant would have also received a message stating
“Software – 9001: this submission would have been
successfully processed if sent under non test conditions.”
HMRC contend that this message should have alerted to the
appellant that they had filed their return in test mode and would still need to
file their return in live mode.
11. HMRC say that although the
appellant assumed their process was successful this was not the case and HMRC
cannot accept this as a reasonable excuse.
12. HMRC make no comments about
the staff difficulties mentioned by the appellant.
13. HMRC provide a summary of a
search which shows that On 20 April 2012 the appellant submitted a return in
test mode and then on 14 June 2012 submitted a return in live mode. What is
also evident is that in previous years the appellant had always used live mode
and had never used test mode.
14. The Tribunals
Observations
The level of the penalty and whether it was unfair 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.”
15. The level of the penalties
has been laid down by parliament and unless the default surcharge has not been
issued in accordance with legislation or has been calculated inaccurately the
Tribunal has no power to discharge or adjust it. 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).
16. The problem for the Tribunal
is that as the appellant submits there is no evidence in the form of the return
that was submitted on 20 April 2012 and HMRC’s response to it. In their
statement of case HMRC outline in detail the procedures, they say what should
happen, what responses should be received. They provide copies of the guidance
they give. What they fail to do is provide evidence of what actually did
happen. The appellant asserts that it submitted the return on 20 April 2012 and
got a receipt from HMRC but again no evidence in the form of a copy of the
submission and receipt is provided by the appellant. HMRC say that the
appellant is only able to make a live submission of an annual return once so
the fact that the appellant made a successful submission on 14 June 2012 is evidence
that the submission on 20 April 2012 was in test mode. No evidence in the form
of the return submitted on 14 June 2012 or HMRC’s acknowledgement of it was
provided to the Tribunal.
17. The tribunal concludes that
both parties accept that a submission was made on 20 April 2012 whether it be
in test or live mode. This date is well in advance of the deadline of 19 May
2012. In the absence of good evidence the Tribunal finds that on the balance of
probabilities the appellant submitted the return in test mode. However because
of the lack of evidence the Tribunal is unable to make any finding as to the
format of the receipt received by the appellant.
18. It is apparent that only two
days after the test submission of the return was made on 20 April 2012 the
company suffered the start of a series of staff difficulties. The first event
was the resignation of a programmer on 22 April 2012. The programmer had
destroyed files on his computer, taken up front wages, sabotaged code and been
negligent. Putting the ensuant problems right clearly caused an overload of
work on the remaining employees. All of this put a great deal of pressure on
the appellant’s staff and time which might have been spent on checking more
carefully the acknowledgement and supporting electronic responses for the
Annual return and whether the Annual return had been submitted properly had to
be spent on attending to other matters.
19. The tribunal considers that there
is inconclusive evidence concerning the nature of the receipt received by the
appellant. The appellant suffered unforeseen staffing difficulties which severely
disrupted the business of the appellant who as a consequence unexpectedly had to
attend to the considerable problems created. The Tribunal accepts that these
establish that the appellant had reasonable excuse for the failure to submit
its annual return in live mode.
20. The Tribunal notes that
Section 118 (2) of the Taxes Management Act 1970 includes the following:
“……….and
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 ceased.”
It is clear
to the Tribunal that as the Annual return was submitted on 14 June 2012 there
was no unreasonable delay after the excuse ceased therefore the Tribunal finds
that the excuse continued throughout the failure period.
21. Paragraph 9 of Schedule 56
of the Finance Act 2009 (Special Reduction) provides HMRC with discretion to
reduce any penalty if they think it right to do so because of special
circumstances. On the information supplied to the Tribunal in this case it
would appear that HMRC did not consider whether there were any special
circumstances which would allow them to reduce the penalty.
22. HMRC have applied the
legislation correctly and calculated the amount of the penalties accurately as
£100 for the period 20 May 2012 to 14 June 2012. However the appellant has
established a reasonable excuse for the late payment of the tax due. Therefore
the appeal is allowed.
23. 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.
PETER R. SHEPPARD
TRIBUNAL PRESIDING MEMBER
RELEASE DATE: 25 October 2013
