3.           The matter to be determined is whether the Appellant has a reasonable excuse for making the late payment of its monthly liabilities.

The Facts

(1)        The Appellant paid 11 of their 12 monthly PAYE/NIC payments late.

(2)        On 17 June 2011 HMRC issued the Appellant with a Penalty Determination for the year ended 5 April 2011 in the amount of £10,551.07.

(3)        On 11 April 2012 the penalty was reduced to £6,944.26 (the month 12 penalty was removed following the AGAR decision).  This resulted in the penalty percentage being reduced from 4% to 3% and the penalty was correspondently reduced.

(4)        The Schedule of late payments is as shown on the table below.

Evidence

4.           The documentary evidence  included:

(1)        Correspondence between HMRC and the Appellant.

(2)        Notes of telephone conversation between HMRC and the Appellant for the relevant period.

(3)        Penalty Notices and PAYE late penalty calculations.

(4)        HMRC legislation, employer bulletins, case law bundle and Respondents’ skeleton argument.

(5)        Notice of appeal and extracts from HMRC documentation dealing with the penalty regime.

The Law

5.           Schedule 56 of the Finance Act 2009 provides for the computation and assessment of the penalty and allows for a penalty to be charged when an employer fails to pay HMRC their monthly PAYE/NIC payment by the due date.

“16(1) Liability to a penalty under any paragraph of this Schedule does not arise in relation to a failure to make a payment if P satisfies HMRC or (on appeal) the First-tier Tribunal or Upper Tribunal that there is a reasonable excuse for the failure; and

(2)     For the purposes of sub-paragraph (1) –

(a) an insufficiency of funds is not a reasonable excuse unless attributable to events outside of P’s control,

(b) where P relies on any other person to do anything, that is not a reasonable excuse unless P took reasonable care to avoid the failure, and

(c) where P had a reasonable excuse for the failure but the excuse had ceased, P is to be treated as having continued to have the excuse if the failure is remedied without unreasonable delay after the excuse ceased.”

Appellant’s Submissions

9.           The Appellant makes the following submissions:

(1) On 16 February 2010 they wrote to HMRC as follows:

“We are advising you that due to having incurred a Company going into liquidation owing us monies to the sum of £100,000 and the downturn of work, we are experiencing cash flow problems, therefore we are notifying the Revenue that our payments will be made, but later than 19^th of each month and hope you can accept the end of each month to help us at this difficult time.”

Their argument therefore is that they were experiencing cash flow difficulties and these were caused by reasons which were outside of their control.

(2)        They stated in their Notice of Appeal that the penalty was “unreasonable, and not in anyone’s best interest”.  They indicated that “time to pay arrangements” were not offered to them and they were operating in very “difficult economic times”.

(3)        They explained that “over the past six years, both the company and directors have paid total tax in excess of £740,000, without giving HM Revenue & Customs any collection problems”.

Respondents’ Submissions

(1)        HMRC say that the Appellant does not have a reasonable excuse for the late payment.  Insufficiency of funds due to poor economic trading conditions does not constitute a reasonable excuse since this is a normal hazard of business.  This is something that all businesses have to accept and adapt to. The withholding of tax and NIC payments to aid general cash flow is not a reasonable excuse for making late payments.

(2)        They refute the Appellant’s contention that one of their customers went into liquidation owing £100,000. They make the following points:

(i)           The event occurred in 2009/10 and not in 2010/11.

(ii)         The event was not proximate enough to the defaults to be responsible for the payment failures.

(iii)       The event did not cause the Appellant to pay late, because they had paid late in earlier years as well.

(iv)        The event was not “behaviour changing” in respect of the PAYE payments, because payments of PAYE had been paid late for many years.

(3)        It is not a reasonable excuse that HMRC did not offer the Appellants a “time to pay” arrangement.  The onus is on the Appellant to contact HMRC to explain their financial position and to ask for some additional time to pay and to make the necessary arrangements.

(4)        The Appellant paid their taxes late over a number of years and are simply making excuses for late payment and have not put forward any acceptable reasonable excuses for the late payments, the legislation requires this to be done for their appeal to succeed.

Conclusion

10.        The Tribunal’s jurisdiction is restricted to a finding of whether there was a reasonable excuse for the late payment of tax. The Tribunal finds that the late payments were not the result of an insufficiency of funds attributable to events outside the Appellant’s control.  In consequence therefore the Appellant does not have a reasonable excuse for failing to make the payments on time.

(1)        when the £100,000 was due to be paid;

(2)        what proportion of the Appellant’s overall cash flow did the £100,000 represent;

(3)        whether the company which failed to pay the £100,000 was the Appellant’s biggest or only client;

(4)        how it was that the £100,000 non-payment prevented the Appellant from paying any PAYE payment on time; and

(5)        whether PAYE payment not paid on time was  due to the £100,000 non-payment.

DR K KHAN

TRIBUNAL JUDGE

RELEASE DATE: 25 October 2013