[2011] UKFTT 281 (TC)

TC01143

Appeal number: TC/2010/08432

Penalty – Late submission of Employers’ Annual Return (P35) – Whether reasonable excuse on facts – No – Appeal dismissed

FIRST-TIER TRIBUNAL

TAX 

	CONNECT BUSINESS SOLUTIONS LIMITED	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

		TRIBUNAL: 	JOHN BROOKS (TRIBUNAL JUDGE)									

The Tribunal determined the appeal on 7 February 2011 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 29 October 2010,  HMRC’s Statement of Case submitted on 16 December 2010 and the Appellant’s Reply dated 22 December 2010.

© CROWN COPYRIGHT 2011
DECISION
Introduction
1.	This is an appeal by Connect Business Solutions Limited (“Connect”) against penalties of £1,200 imposed by HM Revenue and Customs (“HMRC”) under s 98A Taxes Management Act 1970 (“TMA”) for the late submission of an Employers’ Annual Return (“P35”) for 2007-08.
2.	The appeal was allocated to the default paper category and, having considered the papers provided by both parties, a Decision Notice dismissing the appeal and containing a summary of the Tribunal’s findings of facts and reasons for the decision was released on 10 February 2011. Following receipt of the Decision Notice, on 9 March 2011, Mrs Pamela Gosling wrote to the Tribunal, on behalf of Connect, stating that she had received legal advice and understood that “any judgment is required to address all the issues raised”. The letter continued by identifying matters that had not been addressed in the summary decision. Although the nature of the request was at first unclear, further correspondence, in particular the letter of 21 March 2011 from Mrs Gosling, confirmed that she was “actually asking for details of a full judgment of my case as the decision made by the Tribunal failed to address all my points. It is my understanding that legally you [the Tribunal] are required to do so.” 
3.	A party who has been provided with a summary decision, as in this case, is entitled, under Rule 35(4) of the Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009 (“the Rules”), to apply for full written findings and reasons for the decision and must do so before seeking permission to appeal. However, it should be noted that a judge is not bound to mention every piece of evidence, or every argument in a decision. What he has to do is state his findings and reasons for them so that the parties and an appeal court can understand why he decided as he did. In Horridge (t/a Newbridge Parts Centre) v Downshire House (Reproductions) Limited [2010] EWCA Civ 777 Lloyd LJ said at [40]:
“In general terms, a judge must provide enough in his expressed reasoning to enable the parties to know why the case has been decided as it has. However, it would be wrong to expect the judge's reasoning to be fully developed and exposed in all cases and on all points.”
Law
4.	An employer is required, by paragraph (1) of Regulation 73 of the Income Tax (PAYE) Regulations 2003, to deliver to HMRC “before 20 May following the end of a tax year” a return, the P35, containing the following information:
(a)	the tax year to which the return relates,
(b)	the total amount of the relevant payments made by the employer during the tax year to all employees in respect of whom the employer was required at any time during that year to prepare or maintain deductions working sheets, and
(c)	the total net tax deducted in relation to those payments.
5.	Paragraph (10) of Regulation 73 provides that “Section 98A of TMA (special penalties in case of certain returns) applies to paragraph (1).” Section 98A TMA which sets out the liability to penalties for non-compliance with the PAYE Regulations provides:
(1)	PAYE regulations…may provide that this section shall apply in relation to any specified provision of the regulations.
(2)	Where this section applies in relation to a provision of regulations, any person who fails to make a return in accordance with the provision shall be liable—
(a)	to a penalty or penalties of the relevant monthly amount for each month (or part of a month) during which the failure continues, but excluding any month after the twelfth or for which a penalty under this paragraph has already been imposed…
(3)	For the purposes of subsection (2)(a) above, the relevant monthly amount in the case of a failure to make a return—
(a)	where the number of persons in respect of whom particulars should be included in the return is fifty or less, is £100…
6.	Section 118(2) TMA, so far as is material to this appeal, provides:
…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 had ceased.
There is no definition in the legislation of a “reasonable excuse” which has been held to be “a matter to be considered in the light of all the circumstances of the particular case” (see Rowland v HMRC [2006] STC (SCD) 536 at [18]).
Evidence
7.	The evidence before the Tribunal was contained in the following documents:
(1)	The Notice of Appeal dated 29 October 2010.
(2)	HMRC’s Statement of Case submitted on 9 December 2010.
(3)	The following documents or folios attached to HMRC’s Statement of Case:
(a)	Penalty Determination in the sum of £400 dated 29 September 2008;
(b)	Letter dated 9 June 2009 from HMRC to Mrs P M Gosling the representative of Connect;
(c)	Letter dated 11 July 2010 from Mrs Gosling to HMRC;
(d)	Letter dated 15 July 2010 from HMRC to Mrs Gosling;
(e)	Letter dated 22 July 2010 from Mrs Gosling to HMRC with copy of P35 for 2007-08 and letter to HMRC dated 1 February 2010;
(f)	Letter dated 18 August 2010 from HMRC to Mrs Gosling offering a review of the decision to impose a penalty;
(g)	Request to HMRC by Mrs Gosling, dated 25 August 2010, for a review of HMRC’s decision to impose a penalty;
(h)	Letter dated 25 August 2010 from Mrs Gosling to HMRC appealing against HMRC’s decision to impose a penalty; and
(i)	Letter dated 8 October 2010 from HMRC to Mrs Gosling with conclusions of review. 
(4)	A letter dated 22 December 2010, written by Mrs Gosling, in Reply to HMRC’s Statement of Case.
Facts
8.	From this evidence I make the following findings of fact:
(1)	When a P35 is filed online a message appears on the computer screen confirming it has been successfully filed.
(2)	In 2007-08 Connect had two employees and, as in previous years, was required to complete and deliver a P35 to HMRC before 20 May 2008.
(3)	Connect had in the years before 2007-08 filed its P35 online. 
(4)	Contrary to Mrs Gosling’s belief that she had submitted a P35 on behalf of Connect online on 8 April 2008, the P35 was not filed by the due date.
(5)	As the P35 had not been filed, and had been outstanding for four months (20 May 2008 to 19 September 2008), a Penalty Determination in the sum of £400 was issued by HMRC on 29 September 2008. 
(6)	On 9 June HMRC wrote to Mrs Gosling stating that the 2007-08 P35 had not been filed. However, as this letter was addressed incorrectly Mrs Gosling did not receive it.
(7)	A Second Penalty Determination was made by HMRC on 2 July 2010 in the sum of £800. 
(8)	This was calculated on the basis that the 2007-08 P35 had not been filed for the eight months beginning from 20 September 2008 to 19 May 2009.
(9)	On receipt of the Penalty Determination Mrs Gosling wrote to HMRC on 11 July 2010 stating that the first indication of a problem was when she had received a letter from the National Insurance Contributions Office dated 22 January 2010 to say the 2007-08 P35 had not been received and that she had sent a copy of the printout to that office which showed it had been submitted on time.
(10)	On 22 July Mrs Gosling sent a copy of the 2007-08 P35, which was dated 8 April 2008, to HMRC who used this to prepare a pro forma 2007-08 P35 which they processed on 26 July 2010.
Submissions
9.	Connect’s grounds of appeal as stated in the Notice of Appeal, which was prepared by Mrs Gosling, are as follows: 
You will see from the computer generated 2007-08 Form P35 that it is dated 8 April 2008. You will understand that therefore I genuinely thought I had submitted the form online
I would reiterate that the first indication I had that something was amiss was a letter from the National Insurance Office to my client … (a director of Connect) indicating that insufficient NI contributions had been paid in 2007-08. In response I sent them a copy of the 2007-08 form P35 on 1 February 2010.
If I or my client had received the penalty documents then something could have been done to rectify the situation much sooner. The thing I really don’t understand is that if these notices had been issued why was the Accounts Office not chasing for payment of the fines levied?
I feel very let down by the system which is penalising me for an error which I’m not at all sure I’ve made. Furthermore there has been absolutely no loss to the Revenue in terms of unpaid PAYE which was all paid on time. 
10.	HMRC’s response, in their Statement of Case, is that the appeal does not contain anything that shows that something exceptional prevented Connect from submitting the P35 by the due date and, as it does not have a reasonable excuse throughout the period of default the appeal should be dismissed and the penalties confirmed.
11.	Mrs Gosling replied to HMRC’s Statement of Case in a letter dated 22 December 2010. In addition to the matters raised in the Notice of Appeal Mrs Gosling states the first penalty notice was not received and that, as she sent a copy of the 2007-08 P35 to the National Insurance Office (part of HMRC) on 1 February 2010, she does not accept the default period extended to 26 July 2010.
Discussion and Conclusion
12.	The Penalty Determinations in this case were issued in respect of the four months from 20 May to 19 September 2008; and the eight months from 20 September 2008 to 19 May 2009. As the 2007-08 P35 had not been filed within this period I find that the penalties were properly imposed irrespective of whether the period default ended on 1 February or 26 July 2010. Therefore, the issue before me is whether Connect had a reasonable excuse for not filing the P35 during this period of default.
13.	As it was not the first time Connect had filed its P35 online it would have been known that on filing the 2007-08 P35 a message would have appeared on the computer screen indicating that P35 had been successfully submitted. When this message did not appear whoever had attempted to file the P35 would therefore have been alerted that the submission had failed and been aware that the P35 had not been filed as required by the legislation.
14.	As such, whether or not the first Penalty Determination was received and despite HMRC sending the letter of 9 June to the wrong address or not seeking to recover the penalties at an earlier date, I am unable to find that Connect has a reasonable excuse.
15.	The appeal is therefore dismissed and the penalties confirmed.
16.	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.

JOHN BROOKS

TRIBUNAL JUDGE
RELEASE DATE: 3 May 2011