[2011] UKFTT 363 (TC)

TC01218

Appeal number: TC/2011/01085

P35 return—Penalty for late return (Taxes Management Act 1970 s.98A)—Reasonable excuse—Appeal dismissed

FIRST-TIER TRIBUNAL

TAX

TOOLBOX.NET LTD Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

TRIBUNAL: DR CHRISTOPHER STAKER (TRIBUNAL JUDGE) IAN ABRAMS (TRIBUNAL MEMBER)

The Tribunal determined the appeal on 6 May 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 6 January 2011, and HMRC’s Statement of Case submitted on 2 March 2011.

DECISION

Introduction

1. The Appellant appeals against a £400 penalty imposed on 27 September 2010 in respect of the late filing of its P35 employer’s annual return for the tax year 2009/10, and a further £100 penalty imposed on 21 October 2010.

The relevant legislation

2. Regulation 73(1) of the Income Tax (Pay As You Earn) Regulations 2003 imposes on an employer the obligation to deliver to HMRC a P35 return before the 20th day of May following the end of a tax year. Paragraph (10) of that regulation provides that Section 98A of the Taxes Management Act 1970 (the “TMA”) applies to paragraph (1) of that regulation.

3. Section 98A of the TMA relevantly provides as follows:

(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, ...

4. Section 100(1) of the TMA authorises HMRC to make a determination imposing a penalty under s.98A of the TMA in such amount as it considers correct or appropriate. Section 100B of the TMA provides for an appeal against the determination of such a penalty. Section 100B(2)(a) provides that in the case of a penalty which is required to be of a particular amount, the Tribunal may

(i) if it appears ... that no penalty has been incurred, set the determination aside,

(ii) if the amount determined appears ... to be correct, confirm the determination, or

(iii) if the amount determined appears ... to be incorrect, increase or reduce it to the correct amount.

5. Section 118(2) of the TMA provides as follows:

(2) For the purposes of this Act, a person shall be deemed not to have failed to do anything required to be done within a limited time if he did it within such further time, if any, as the Board or the tribunal or officer concerned may have allowed; 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 had ceased.

The arguments of the parties

6. An internal HMRC review of the penalty determination dated 27 January 2011 records that the Appellant claimed that it was having difficulties submitting the return through the “Government Gateway”, that the Appellant contacted the HMRC Online Services Team on 14 April 2010 and believed that upon entering the system on 21 April 2010, it had submitted the P35 return, and that had the Appellant known earlier that the P35 had not been received it would have resubmitted it. The internal review concluded that HMRC records indicated that the Appellant successfully logged onto the system on 20 April 2010 with a new ID number generated from the Appellant’s call to the helpline on 14 April 2010, but that no submission of the return was attempted. The internal review added that HMRC guidance advises that where a submission is attempted, an acceptance or rejection message will be received. The internal review added that HMRC is not obliged to issue reminders, that penalty notices are not reminders, and that the Appellant accordingly the Appellant did not have a reasonable excuse for the late submission of the return.

7. The Appellant’s case is that the Appellant has provided evidence of compliance with the requirement to submit the return on time, that all monies owing to HMRC had been paid by the year end, that the Appellant therefore had nothing to hide from HMRC, that HMRC could easily have checked that all payments were up to date, that if the Appellant had been advised that there was a problem the matter could have been sorted before a penalty was imposed, and that the penalty was a way of HMRC gaining more revenue.

8. In the papers was also a letter from the Appellant to HMRC dated 12 October 2010 stating that the return was completed on 21 April 2010 using the Employer CD-ROM 2010, and a copy of a printout from the HMRC website showing that the Appellant logged onto the website on 21 April 2010. The letter states that the Appellant genuinely believes that the P35 was completed “and somehow it has been lost in the system”. The letter adds that reminders were not received because the address that HMRC has for the Appellant is incorrect.

9. The HMRC statement of case included evidence which HMRC submitted established that the Appellant was issued with a replacement user ID in the post, that the Appellant used this user ID to log into the HMRC online systems on 20 April 2010 to request an online replacement password which was used to log on successfully the following day, and that there were no further log ons or attempted submissions between 21 April 2010 and 12 October 2010. The statement of case adds that the Employer CD-ROM does not require a password to complete the return, but that it requires a user ID and password to submit the return, and that if a submission attempt were made, HMRC would see a successful or failed submission in their tracking system.

10. The HMRC statement of case adds that the Appellant would not have been able to access its employees’ P60s until the P35 was submitted, and that the Appellant had a statutory obligation to distribute P60s to employees by 1 June 2010, so that the inability to do so should further have alerted the Appellant to the fact that the P35 had not been submitted.

11. A reply filed by the Appellant on 8 March 2011 states amongst other matters that the Appellant simply followed the instructions on the CD and was unaware that a confirmation message would be received, that the Appellant was able to access the P60s on 21 April 2010, that P35s for previous years had been completed by a different person, and that folio 2 attached to the HMRC statement of case shows that the P35 and P14s had been sent to HMRC.

The Tribunal’s view

12. The Tribunal must determine questions of fact on the evidence before it on the basis of the balance of probability.

13. The Tribunal finds that an employer does not discharge the responsibility to submit a return merely by seeking in good faith to submit a return online, if the return is not received by the HMRC computer system.

14. On the evidence before it, the Tribunal considers it improbable that the HMRC system would receive a return without generating a confirmation message, and without the system recording that the return had been received. The evidence is that the computer system indicates that the Appellant logged on to the system within the deadline, but that no attempt was made to submit the P35.

15. On the evidence before it, the Tribunal is satisfied that no return was received by the HMRC system within the deadline. The Tribunal is also satisfied on a balance of probability that no confirmation was sent by the system.

16. The Tribunal therefore finds that the return was not submitted by the deadline.

17. On its consideration of the evidence, the Tribunal considers that even if the Appellant did attempt in good faith to submit the return online within the deadline, and believed that the instructions on the CD were being correctly followed, this attempt was unsuccessful. The Tribunal is further satisfied that the HMRC computer systems are designed to make it obvious to users whether the submission of a return has been successful or not. The Tribunal finds on a balance of probabilities that if an attempt was made by the Appellant to submit a return online within the deadline, it should have been apparent to the Appellant at the time that the attempt had been unsuccessful. While the Tribunal accepts that some users may find the online filing system confusing or difficult, sufficient explanatory material and help is available, and that an ordinary employer, acting diligently, is capable of submitting an on-line return. The Tribunal is not satisfied that any circumstance has been established giving rise to exceptional difficulties in this particular case. The Tribunal agrees that HMRC is under no obligation to issue reminders and that the absence of a reminder is not a reasonable excuse. The Tribunal therefore finds that a reasonable excuse for the late submission has not been established.

18. The Tribunal is satisfied that the penalty imposed is in the correct amount.

Conclusion

19. It follows that this appeal must be dismissed, and the penalty determination confirmed.

20. 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.

First-tier Tribunal (Tax)