First-tier Tribunal (Tax)

This considers an appeal against a penalty of £500 levied by HMRC for the late filing by the appellant of its Employer Annual Returns (forms P35 and P14) for the year 2010 – 2011. By a direction of the Tribunal dated 10 February 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 3 October 2011. On 26 September  2011 HMRC sent the appellant a first late filing penalty notice for £400 for the period 20 May 2011 to 19 September 2011. On 6 October 2011 HMRC sent the appellant a second late filing penalty notice for £100 for the period 20 September 2011 to 3 October 2011.

On 3 October 2011 the appellant’s agent, who is variously referred to in the papers as GC Accountants; GC Consultancy Ltd. and Georgiades Charalambou & Co LLP, wrote to HMRC. The letter explains “according to our software, the P35 was submitted on 21 April 2011 by internet. However, due to a computer error the form did not go through online.”

On 11 November 2011 HMRC replied saying that they did not consider that the reasons given for the late submission of the return constituted a reasonable excuse. They offered a review.

On 11 November 2011 the appellant’s agent replied to HMRC repeating the points made in the earlier letter but also saying:

“Please note that we filed the annual returns of 200 clients this year without any problem and our internal control and schedules show that the return was filed on 21 April 2011.

Finally, and especially as all liabilities were paid on time, we do not understand why you have refused to abide by your own guidance on reasonable excuse i.e. “HMRC does not want to penalise customers who would have filed on time but were prevented from so by events beyond their control. For this reason a reasonable excuse claim received without details of the IT message will still be considered.”

In view of the circumstances and the fact that technical errors with HMRC online filing are beyond our control, could you please waive the ….penalty.”

HMRC wrote to the appellant on 21 December 2011 advising that the result of the review was that the decision to levy the penalty was correct and that the reasons given by the appellant’s agent for the late submission of the Employer’s annual Return were not considered sufficient to establish a reasonable excuse.

The Notice of Appeal dated 20 January 2012 submitted by the appellant’s agent contained comments very similar to those mentioned above.

HMRC say that the appellant submitted its Employer’s Annual Return for 2010-2011 online on 3 October 2011. HMRC say that where an employer fails to make an Employer Annual Return on time Section 98A (2) and (3) of the Taxes Management Act 1970 provides for a penalty of £100 for each month (or part month) during which the failure continues for each batch (or part batch) of 50 employees. Therefore the penalty of £500 is correct and fixed in legislation.

HMRC point out that it is the employer’s responsibility to ensure that the return is submitted on time.

HMRC say that GC Consultancy Ltd. have not submitted any evidence to show the successful submission of the returns for the appellant on 21 April 2011. They say GC Consultancy Ltd should be familiar with the process as by their own admission they successfully submitted returns for over 200 clients. In addition they should be familiar with the online acceptance/rejection messages which would have alerted them to any submission problems.

HMRC say there is no evidence of any computer or software or technical online errors within HMRC and would contend that as GC Consultancy Ltd successfully submitted eight other End of year returns on 21 April 2011 computer failure in this case, cannot be accepted as a reasonable excuse.

The level of the penalty and whether HMRC’s failure to send a prompt reminder 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.”

PETER R. SHEPPARD

TRIBUNAL PRESIDING MEMBER

RELEASE DATE: 23 December 2013