Waring Investments Ltd v Revenue & Customs [2011] UKFTT 387 (TC) (10 June 2011)

DECISION

1. There can be very few people who enjoy filling in forms. And for many people filling in forms on a computer online is even worse. You have to remember your password and whether bits of it are upper or lower case, and find that bit of paper with your number on it, and then put it into the machine without transposing the digits or accidentally turning on the CAPS LOCK. And if you do it wrong too many times the machine at the other end locks you out.

2. These are some of the vicissitudes of modern life. The past had them too: biros which stopped working, fountain pens which leaked, and quills which went soggy. But to some of those who have accustomed themselves to inky fingers, online dealings can be much more frustrating.

3. But for centuries the citizen has been required to fill in forms to oil the apparatus of the State, to put food on the plates of statisticians and to put information before administrators and policy makers. Nowadays, as the digital tidal wave advances, certain taxpayers are required to communicate with HMRC online. And, just as the taxpayer who could not get his fountain pen to work was unlikely to be excused from filling in his form, so today the taxpayer who forgets his password, transposes the digits of his user ID or has a dodgy broadband connection is unlikely to be excused his duty of sending his form online to HMRC.

4. In this case the taxpayer is an employer. It pays employees and accounts for PAYE and NI to HMRC. At the end of every tax year it is required by regulation 73 of the Income Tax (Pay as You Earn) Regulations 2003 (the “PAYE regulations”), before 20 May after the fiscal year end, to “deliver to [HMRC] a return containing” the information set out in that regulation about its employees and the payments to them. This return is called a P35.

5. Section 98A of the Taxes Management Act 1970 provides for a penalty if a person fails to comply with this duty:

“(1) PAYE regulations … may provide that this section shall apply in relation to any specified provision of the regulations [Regulation 10 provides that “section 98A of TMA … applies to paragraph (1).”]

“(2) Where this section applies in relation to a provision of the regulation, any person who fails to make a return in accordance with the provision shall be liable –

(a) to a penalty of the relevant monthly amount for each month (or part of a month) during which the failure continues …

“(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 is fifty or less, is £100 …”

(The Appellant had less than 50 employees).

6. Section 100 TMA gives power to an officer of HMRC to make a determination which imposes a penalty under section 98A, and section 100B TMA provides a right of appeal to this Tribunal, and gives the Tribunal power in the case of a final penalty to confirm or set aside the penalty, or increase or reduce it to the correct amount. No power is given to the Tribunal to change the amount of the penalty set by section 98A.

7. Section 118 TMA provides that ‘where a person had a reasonable excuse for not doing anything 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 ceased’.

8. Thus the Appellant was required to deliver a P35 before 20 May after the end of each fiscal year. If it failed to do so it became liable to a penalty of £100 for each month in which the failure continued unless it had a reasonable excuse for that failure. If a penalty determination was made, it could appeal to this Tribunal and our powers on such an appeal are to confirm or set aside the penalty. We would set it aside if the Appellant had a reasonable excuse for its failure.

9. For fiscal years before that ending on 5 April 2010 the Appellant had delivered a P35 in paper form. Sir Holburt told us, and we accept, that his company was happy promptly to comply with the obligations to account for tax and to provide forms to HMRC, as the legislation required it to do.

But in 2009, the Income Tax (Pay as You Earn)(Amendment No.2) Regulations came into force. These new regulations had effect for the tax year 2009-10 and subsequent years. They inserted new regulations in the 2003 PAYE regulations; among those new regulations were:-

“205B(1) [HMRC] may make a general or specific direction requiring an employer … to deliver any relevant annual return … by a particular approved method of electronic communications …

“206A(1) In this Chapter “relevant annual return” means the return and accompanying information required by regulation 73 … (Forms P35 and P14) …”

“210(A1) An employer who fails to deliver a relevant annual return or any part of it in accordance with regulation 205 is liable to a penalty.

… (2) Where paragraph (A1) applies the penalty most be determined in accordance with regulation 210A.

… (4) Regulation 210C applies irrespective of how the penalty falls to be determined …

“210A Table 9 sets out the penalty for the tax year ending 5 April 2010, depending on the number of employees for whom particulars should have been included …

Number of Employees … Penalty

1-5 0

6-49 £100

“210C(1) An employee is not liable to a penalty if the employer had a reasonable excuse for failing to comply with regulation 205 … which had not ceased at the time the relevant annual return was delivered.

(2) A notice of appeal against a determination under section 100 [TMA] of a penalty can only be on the grounds that –

(a) the employer is not a specified employee [irrelevant to this appeal].

(aa) the employer is not regarded as an employer ..

(b) the employer did comply with regulation 205 …

(d) paragraph (1) applies.”

11. We note that the requirements of regulation 73 and those of regulation 210 are separate. The first requires delivery of a return. The second requires the submission of “a” return online. It seems to us that if a taxpayer submitted a paper return on time he would have complied with regulation 73 even if he did not comply with regulation 210. Regulation 205B may have the effect of requiring that a return is delivered online but does not require that the delivery of a paper return does not comply with regulation 73. Regulation 210 simply provides for a penalty if “a” return is not delivered online. Clearly compliance with regulation 210 would ensure compliance with regulation 73, but the reverse is not the case.

12. This conclusion is also indicated by the penalty provision of section 210(A1). If failure to deliver a return online on time gave rise to a penalty under section 98A there would seem to be little need for the additional penalty provisions which follow section210(1).

The appeal

13. The Appellant appeals against a penalty determination issued on 5 August 2010 for £300. The notice does not expressly indicate under which regulation or statutory provision it is issued but explains that since the company did not make its end of year return by 19 May 2010, it is liable to a penalty of £100 per “month for every 50 (or up to 50) employees [and] you have been charged penalties from 20 May 2010 to 02 August 2010.” It seems clear therefore that this penalty determination arises from the provisions of section 98A TMA with regulation 73 of the PAYE regulation, rather than regulation 210 of those regulations.

14. The Appellant’s grounds of appeal are essentially that it tried unsuccessfully to submit its return online. We shall return to the detail later.

The Evidence

15. We heard evidence from Sir Holburt Waring and from his son, Michael Waring. We also heard evidence from Mrs Gardiner about the way in which online returns were to be made. We were impressed by, and grateful for, the candour of those from whom we heard evidence. We had before us a bundle of correspondence between the parties which also contained computer printouts. We find the following facts.

How should an employer submit its return online?

16. Even with the benefit of Mrs Gardiner’s explanation, we did not find it easy to grasp exactly how an employer who had not used online submission before should submit his first online P35. Mrs Gardiner told us that additional help could be found by clicking on the appropriate link on HMRC’s website but unfortunately that was not available to us. We found from Mrs Gardiner’s explanation that the following steps were required:-

(i) go to the government gateway website and register. This required that you provide a password and certain other details;

(ii) you would be given a USER ID number either at this stage or shortly after it;

(iii) then you had to find the PAYE Employers Service somewhere in the government gateway site. You had to enter the Employer’s PAYE identification number;

(iv) you would then be told that within 7 days you would be sent, by post, an Activation Code;

(v) when the Activation Code arrived you had 28 days to use it. After that it lapsed and you would have to start again. You used the Activation Code by going either to the government gateway site or the HMRC website (Mrs Gardiner was not completely sure which was right), and then going to the PAYE area where you entered your Activation Code. Along the way you might also be required to enter the User ID you had been given at (ii) and the password you had been given at (i);

(vi) then you would be able to fill in the form P35 online and submit it.

The Appellant’s attempts to submit its return online

17. Sir Holburt Waring has an interest in both the Appellant, Waring Investments Ltd, and SRM Plastics Ltd. Both companies were employers in 2009-10, and both were required to submit a P35 for the year. Since this was the first year in which online filing was required, he asked his son, Michael Waring, to do both filings. His son has access to a computer and is an Information Technology Consultant.

18. Michael Waring successfully navigated his way through the websites, passwords, Employer numbers, USER IDs and Activation Codes for SRM Plastics Ltd and submitted its online return on time on 15 April 2010. When he came to repeat the process for Waring Investments he was not so successful.

19. The precise sequence of events was not absolutely clear from the documentation before us and Mr Waring could not always differentiate with confidence between documents which related to SRM and those which related to Waring Investments. It seemed to us however that the likely sequence of events was this:

(i) On 31 March 2010 Mr Waring got on to the government gateway site, and obtained a user ID which he then used to seek an Activation Code from the PAYE Employers’ service. On receipt of the Activation Code, he successfully to submitted the SRM return some days later.

(ii) On 15 April Mr Waring again registered with the government gateway and obtained a second User ID. It was unclear whether this resulted in a second Activation Code being sent to him. There was an email before us of 30 April which suggested an “Activated PIN” (rather than ‘code’) had been sent to him on 18 April, but that may not have related to his 15 April registration.

(iii) On 30 April, 21 May, 4 June and 25 June Mr Waring attempted to enrol for the PAYE Employers’ service. It is likely that in those attempts he was trying to enrol through the government gateway rather than the HMRC site. He had, quite understandably, forgotten at this stage exactly how he had gone about the same process for SRM. Sometimes the computer at the other end refused to help, sometimes it said Try Again Later.

(iv) On 12 July Mr Waring successfully obtained a USER ID. (In fact the documents before us indicated that he had obtained two USER IDs on that day). On 20 July he enrolled for the employers’ PAYE service and was sent an activated code on 22 July. After an unsuccessful attempt to log on on 30 July, he managed to get through to the Employers’ PAYE site on 2 August by using the password and submitted the P35.

Discussion

20. There is no doubt that the Appellant’s P35 was not received before 20 May 2010 and was received on 2 August 2010. The question for us is whether the Appellant has a reasonable excuse for its delay.

21. Our overall impression is that after his successful submission of SRM’s P35, Mr Waring became as muddled as we were, and as uncertain as Mrs Gardiner, about how exactly to submit the Appellant’s P35. But there was a period between 30 April and 21 May when he appeared to have given up the ghost. In our view it would have been reasonable for him to have conducted a slow and careful review of HMRC’s website in this period to work out exactly what had to be done and then attempt to do it before the deadline of 20 May. If that had proved fruitless then a letter to HMRC with a paper return and a history of his trials before that date would have been a reasonable response. (Indeed, as noted earlier, it seems to us that the submission of a paper return before 20 May would have avoided a penalty under section 98A even if it would not have avoided a potential penalty under regulation 210A (although the amount would have been nil) because the Appellant had fewer than five employees).

22. Therefore, although we quite understand how mistakes could have been made and have considerable sympathy for Mr Waring, we find that the Appellant did not have a reasonable excuse for its failure to submit its return on time.

23. We therefore dismiss the appeal.

Rights of Appeal

24. 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)

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

CHARLES HELLIER

TRIBUNAL JUDGE

RELEASE DATE: 10 JUNE 2011

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You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> Waring Investments Ltd v Revenue & Customs [2011] UKFTT 387 (TC) (10 June 2011) URL: http://www.bailii.org/uk/cases/UKFTT/TC/2011/TC01242.html Cite as: [2011] UKFTT 387 (TC)