First-tier Tribunal (Tax)

[2013] UKFTT 667 (TC)

TC03049

Appeal number: TC/2012/04825

TYPE OF TAX – PAYE – late submission of Employer’s Annual Return – whether scale of penalty is reasonable , and whether penalty  should be waived  - Decision of Upper Tribunal in Hok Ltd applies.  Whether marriage breakdown, financial hardship and possible computer software failure constitute a reasonable excuse for late submission of return - No.

FIRST-TIER TRIBUNAL

TAX CHAMBER

The Tribunal determined the appeal on 20 August 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 dated 28 March 2012 with enclosures, and HMRC’s Statement of Case submitted on 18 June 2013 with enclosures. The Tribunal wrote to the Appellant on 25 June 2013 indicating that if they wished to reply to HMRC’s Statement of Case they should do so within 30 days. No reply was received.

© CROWN COPYRIGHT 2013

DECISION

1.      Introduction

This considers an appeal against a penalty of £300 levied by HMRC for the late filing by the appellant of its Employer Annual Return (forms P35 and P14) for the year 2010 – 2011. By a direction of the Tribunal dated 25 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.

2.      Legislation

Income Tax (Pay As You Earn) 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).

3.      Case law

HMRC v Hok Ltd. [2012] UKUT 363 (TCC)

4.      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 2010-2011 the appellant failed to submit Forms P35 and P14 until 20 July 2011. On 25 July 2011 HMRC sent the appellant a late filing penalty notice for £300 for the period 20 May 2011 to 20 July 2011.

5.      The appellant considers that a genuine mistake was made and requests that the Tribunal waive the penalty.

6.      The appellant gives the following  excuses for the late return

i)   The person responsible for submitting the return was experiencing marriage difficulties at the time the return was due.

ii) The appellant was experiencing financial hardship at the time.

iii)                The data was input on the system using QuickBooks in May 2011 but before the deadline of 19 May. This system had been used successfully by the appellant in previous years. On this occasion it did not arrive with HMRC. There may have been an HMRC website glitch or an administration error on the part of HMRC. It was only later that it was discovered that this attempt had failed. In a letter dated 12 March 2012 the appellant states “I cannot be sure if this was a software error or a human error on my part as my marriage was in the process of breaking down at that point and it is possible that I made an error in completion of the submission.” HMRC state that they have no record of the appellant logging into the HMRC on line system until 20 July 2011 when the P35 was submitted. HMRC also have no record of the appellant advising any difficulty in submitting the return prior to 19 May 2011. HMRC accept that the appellant has a good record of filing in the past and all payments are up to date. However they observe that an experienced filer should be aware that on receipt of a successful submission to HMRC an online message of confirmation is issued, and also if an e-mail address is provided, an e-mail message.

The tribunal notes that HMRC have available on line a guide entitled “Filing your Employer Annual Return (P35 and P14s)”. One paragraph is headed “Acceptance and Rejection messages when you file online”. This gives details of the various messages that could be received including notification if an application has been accepted or rejected. It appears that the appellant received neither of these and therefore should have realised there was a problem.

7.  The decision of the Upper Tribunal in the case of Hok Ltd. considers whether the jurisdiction of the First-tier Tribunal includes the ability to discharge or reduce 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.”

8. The level of the penalties has been laid down by parliament. HMRC has applied the legislation correctly and calculated the amount of the penalty for £300 accurately for the period 20 May 2011 to 20 July 2011.  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).

9.      The Tribunal has considered the three excuses submitted by the appellant. Taxpayers have a reasonable length of time from the end of their tax year until 19 May to submit their Employer’s Annual Return. The papers reviewed contained no explanation of why the marriage difficulties of one person constituted a reasonable excuse for the appellant’s failure to submit the return for the whole of that period.

10.  The business was experiencing financial hardship. In their statement of case the respondents accept that the appellant’s PAYE payments were all up to date. The penalty has been levied for failure to submit Forms P35 and P14 on line by the due date. It is therefore difficult to understand how financial hardship of the appellant could constitute a reasonable excuse for the late filing by the appellant of its Employer Annual Return (forms P35 and P14) for the year 2010 – 2011.

11.  In respect of the submission error it seems likely that the appellant made an error when attempting to submit its return on line before the May 19 deadline and for some reason failed to connect to the HMRC online system. The lack of any confirmation or rejection should have alerted the appellant ( who HMRC state “has a good record of filing in the past” ) to the possibility of a problem and the need to make further enquiries.

12.  The appellant has established no reasonable excuse for the late submission of the Employer’s Annual Return (Forms P35 and P14) for the year 2010-2011.

13.  Therefore for all the above reasons the appeal is dismissed.

14.  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: 12^th September 2013