[2012] UKFTT 131 (TC)
TC01826
Appeal number:
TC/2011/02516
Employer’s
penalty for late return – reasonable excuse – whether penalty can be mitigated
–delay in notification of penalty – fairness - appeal dismissed
FIRST-TIER TRIBUNAL
TAX
STEPHEN
BOYD Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL:
J. BLEWITT (JUDGE)
J.
ADRAIN (MEMBER)
Sitting in public at Belfast on 21 July 2011 and 7 November 2011
Mr Boyd, the Appellant
Mr Chapman, instructed by the General
Counsel and Solicitor to HM Revenue and Customs, for the Respondents
© CROWN COPYRIGHT
2011
DECISION
1. This
is an appeal against the imposition of penalties in the total sum of £400 for
the late submission of the employer’s annual return (P35) for the period
2009/2010.
Background
2. The
Appellant was required to file online the end of year return by 19 May 2010.
HMRC issued a penalty notice in the sum of £400 on 27 September 2010 and accepted
that the return was subsequently filed online on 23 February 2011.
3. The
Appellant, through the bookkeeper Mrs Shepherd, appealed against the penalty
imposed to HMRC by letter dated 14 October 2010 in which it was submitted that
the return had been submitted online on 18 May 2010. By letter dated 24
December 2010 HMRC upheld the penalty on the basis that the return was still
outstanding.
4. A
review of HMRC’s decision was requested by the Appellant on 16 January 2011,
submitting that:
(a)
Mrs Shepherd had filed the return to the best of her knowledge on 18 May
2010 and it looked like the return had been submitted;
(b)
It should not take 5 months for HMRC to contact the Appellant regarding
the outstanding return;
(c)
There is only one employee of the company.
5. By
letter dated 2 March 2011, HMRC upheld the penalty and advised the Appellant
that:
(a)
HMRC’s records show that an attempt was made to file the return online
on 18 May 2010;
(b)
The return was not received until 23 February 2011;
(c)
If filed successfully, a message would have been received by the
Appellant showing acceptance or rejection;
(d)
Lack of knowledge in respect of filing online is not considered to be a
reasonable excuse;
(e)
The onus of submitting the return rests on the employer; HMRC do not
issue reminders and penalty notices are not reminders.
6. By
Notice of Appeal dated 31 March 2011 the Appellant appealed to the Tribunal
Service. The grounds of appeal relied upon can be summarised as follows;
(a)
It was the first occasion on which the bookkeeper had filed online and
she thought she had done so on 18 May 2010;
(b)
It took 5 to 6 months before the Appellant was contacted about the
outstanding return;
(c)
At the point that the Appellant was contacted, the penalty of £400 had
already been imposed;
(d)
The Appellant cannot afford to pay the penalty given that it is a small
business and bearing in mind the poor economic climate;
(e)
Rules for filing should be made more easy to understand;
(f)
A very simple mistake was made.
Submissions
7. The
appeal was adjourned part heard on 21 July 2011 for reasons that will become
clear in this decision. We heard evidence from Mr Chapman for HMRC and Mr Boyd,
the Appellant on both 21 July 2011 and 7 November 2011 and we will outline the
submissions made by each in turn.
Preliminary matter
8. The
Tribunal directed, following the adjournment on 21 July 2011, that HMRC were to
notify the Tribunal Service by 1 September 2011 whether another hearing was
required. Mr Boyd submitted that the Tribunal Service was not notified until 9
September 2011 and as a result the hearing should not take place.
9. We
considered this issue, and Mr Chapman’s explanation, given with apologies, that
the delay was due to the fact he was working alone.
10. The hearing had
already been heard in part and the purpose of the adjournment was to assist the
Appellant and the Tribunal as to why the figure of tax/NICs of £2,892.48 was
registered on HMRC’s system as payable (double the correct amount) and whether
this could assist the Appellant’s case. We accepted Mr Chapman’s explanation as
to why notification was delayed, and took the view that the delay was not
excessive. We observed that the Appellant had approximately 2 months from being
notified of the request for a further hearing in which to address the
clarification given by HMRC and in our view no prejudice was caused to the
Appellant. We bore in mind the overriding objectives and concluded that in
order to deal with the case fairly and justly, the hearing should continue.
Submissions of HMRC
11. It was submitted
on behalf of HMRC that if a return is successfully filed online, confirmation
messages are received to the software and email address. Mr Chapman explained
that information about online filing is readily available to the public, for
example on HMRC’s website, and a CD Rom is available to provide further
assistance. We were shown a typical example of such a message which confirmed
that a return “has been processed and passed full validation”.
12. It was submitted
by Mr Chapman that in the absence of ensuring that such confirmation was
received, the Appellant did not have a reasonable excuse for the late
submission of the return.
13. As a result of
the query raised as to why HMRC’s system showed double the correct amount of
tax/NICs payable, we adjourned the case in order that clarification could be
sought as to whether this could be a result of the return having been filed, as
submitted by Mr Boyd, on 18 May 2010, or whether there was another explanation.
14. At the resumed
hearing on 7 November 2011, Mr Chapman explained that he had made inquiries
into the concerns raised by the Tribunal and in a letter dated 9 September 2011
to the Tribunal Service he had set out his findings:
(a)
There is no evidence to suggest that the Appellant’s PAYE was filed on
18 May 2010;
(b)
There is a record that the Appellant filed the employee’s pay and
tax/NICs details (P14) for 2009/2010 twice on 23 February 2011, so instead of
£1,446.24 tax/NICs being shown as the amount payable before payments, £2,892.48
was registered on the system as payable (exactly double the correct amount.)
(c)
There is no record of the P35 being filed twice;
(d)
The Appellant tried to make an amendment to his P35 on 12 April 2011 to
correct the mistake at (b) above. This was unsuccessful as the correct boxes
were not filled in;
(e)
The HMRC Online Services Helpdesk has no record of any incoming calls
from the Appellant.
15. It is right to
note that in respect of (e) above, the Appellant produced telephone records at
the hearing on 7 November 2011 showing telephone calls made to HMRC numbers. Mr
Chapman, properly in our view, accepted that he did not dispute that telephone
calls were made, but that there was no record of telephone calls made to the
Helpdesk. We had no reason to doubt Mr Boyd’s evidence that the telephone calls
were made, and we accepted it as fact. However in our view this provided little
assistance in determining the issue before us given that, on Mr Boyd’s own
evidence, the telephone calls took place after he was notified of the penalty
imposed and was therefore of limited use in deciding whether a reasonable
excuse existed for the late filing of the P35 for the period May to September
2010.
16. In response to
Mr Boyd’s oral query during the hearing as to whether the Appellant’s details
had been dormant on HMRC’s system since 18 May 2010 only to be reactivated by
the filing on 23 February 2011, Mr Chapman submitted that there was no evidence
to support such a contention.
17. Mr Chapman confirmed
to us that the only P35 caught on HMRC’s system was that filed on 23 February
2011 and that although he did not dispute the fact that Mr Boyd and Mrs
Shepherd had held a genuine belief that the return had been filed on 18 May
2010, this did not, in HMRC’s submission, amount to a reasonable excuse.
18. In the absence
of any evidence that the P35 had been filed on 18 May 2010, and on the basis of
the conclusions reached after further inquiries were made, Mr Chapman submitted
that there was no reasonable excuse for the late submission of the return.
Submissions of Mr Boyd
19. Mr Boyd
presented as a genuine and credible witness and we were greatly assisted by his
clear and concise submissions.
20. He explained
that he had been self-employed for over 20 years, during which time he had
never been late with any self-assessment payments to HMRC. He stated that the
company had one employee and Mrs Shepherd who assisted with the bookkeeping.
21. Mr Boyd
explained that Mrs Shepherd is a highly competent office manager with
significant experience in addition to being computer literate. It was the first
time that Mrs Shepherd had filed a return online, and having registered on the
system on 7 May 2010 she filed the return on 18 May 2010. Mr Boyd said that he
checked the return had been filed the following day and to the best of both
his, and Mrs Shepherd’s knowledge, everything was up to date.
22. Mr Boyd
submitted that the P35 had been captured twice on HMRC’s system; first on 18
May 2010 and second on 23 February 2011, resulting in the demand for additional
payments. An amendment was requested by Mrs Shepherd however over the course of
the weeks following this request, no amendment was made although the request
was shown on HMRC’s system.
23. Mr Boyd set out
the three points upon which he relied as follows:
(a)
Significant doubt as to whether or not the return was captured on 18 May
2010;
(b)
Whether, if the return was not captured on 18 May 2010, there was a
reasonable excuse for its late submission; and
(c)
If the return was not filed on 18 May 2010 and no reasonable excuse
exists, then the level of the fine is disproportionate to the amount of tax and
NIC for the year.
24. Mr Boyd stated
that it was only in September 2010 that he was made aware that the return was
outstanding and that between September 2010 and February 2011 he was in
constant contact with MHHMRC. It was not
until 23 February 2011 that Mrs Shepherd spoke to an employee of HMRC who was
helpful, at which point she was informed that the return was not captured on
HMRC’s system.
25. A demand for
payment was received on 20 April 2011, which appeared to show twice the amount
due and which led Mr Boyd to believe that the P35 had been captured on HMRC’s
system twice.
26. We were told
that since, and as a result of this incident, Mrs Shepherd had resigned.
27. At the hearing
on 7 November 2011, Mr Boyd submitted that the penalty imposed was a criminal
matter. We were provided with cases relied on in support of this submission, to
which we will turn in due course.
28. Mr Boyd observed
that filing two P14s could not be done accidentally and queried whether the
information had been dormant on HMRC’s system, having been filed on 18 May 2010
and then again on 23 February 2011.
29. Mr Boyd
reiterated the number of telephone calls made to HMRC to clarify the matter and
submitted that the lack of records held by HMRC to support this assertion was
indicative of the poor system.
30. Mr Boyd invited
us to mitigate the penalty imposed on the basis that he has never before been
late in filing returns or making payments to HMRC and that the penalty as it
stands is an injustice bearing in mind his diligent behaviour as a prudent
employer over a substantial number of years.
Legislation
31. 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 s.98A of
the Taxes Management Act 1970 (the “TMA”) applies to paragraph (1) of that
regulation.
32. Under sections
98A (2) and (3) of the Taxes Management Act 1970 the Appellant was liable to a
fixed penalty of £100 for each month or part month that it was in default with
the return.
33. Reasonable
excuse is provided for by section 118 (2) of the Taxes Management Act 1970:
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.
Case law
34. We were referred
to the following cases:
(a)
Anthony Leachman T/A Whiteley and Leachman v HMRC [2011] UKFTT 261 (TC)
(b)
Walton Kiddiwinks Private Day Nursery v Revenue and Customs [2011] UKFTT 479 (TC)
(c)
Hok Limited v HMRC [2011] UKFTT 433 (TC)
(d)
Key Interiors Creative Associates Limited v HMRC [2011] UKFTT 591 (TC)
(e)
Schola UK Ltd v HMRC [2011] UKFTT 130 (TC)
35. We bore in mind
the fact that each of the cases relied upon by the parties were decisions from
the First Tier (Tax) Tribunal and consequently are not binding upon us.
36. Mr Boyd relied
on the case of Anthony Leachman T/A Whiteley and Leachman v HMRC (“Leachman”)
in support of his case. In the Leachman case there had been what was
deemed to be a “genuine mistake of fact...capable of amounting to a reasonable
excuse” in that the taxpayer believed his accountant would file the P35 and the
accountant believed that the taxpayer would attend to it. We considered this
case carefully, and noted that the Tribunal in that case was careful to decide
it on the specific facts. We concluded that the case was distinguishable on the
basis that there had not been the same mistake of fact in the case before us;
neither Mrs Shepherd nor Mr Boyd believed the other would take responsibility
for filing the return. Furthermore we took the view that even if a mistake of
fact can, in law, amount to a reasonable excuse, each case must be decided on
its own facts; in this case there was no evidence before us upon which we could
be satisfied that there was a mistake of fact between the genuine beliefs held
by Mrs Shepherd and Mr Boyd and therefore we did not find that there was a
reasonable excuse in that respect.
37. We were referred
to the case of Walton Kiddiwinks Private Day Nursery v Revenue and Customs in
which Judge Jones QC took the view that following the European Court, HMRC must
bear the burden of proving a default and that default penalties and surcharges
levied against a taxpayer were analogous to criminal penalties.
38. We considered
the view held by the Tribunal in the case of Walton Kiddiwinks Private Day
Nursery v Revenue and Customs. We were satisfied from Mr Chapman’s evidence
that there was no record on HMRC’s system of anything more than an unsuccessful
attempt to file the P35 prior to 23 February 2011 and in the absence of any
evidence to support the Appellant’s assertion we could not be satisfied that
the P35 had been dormant on the system. We found as a fact that neither Mr Boyd
nor Ms Shepherd had received confirmation that the return had
been successfully submitted, which, in our view supported our finding that the
P35 had not been submitted. Having found as a fact that there was a
default, we were satisfied that a penalty became due and went on to consider
whether the Appellant had a reasonable excuse. We did not find the discussion
by the Tribunal in the case of Walton Kiddiwinks Private Day Nursery v
Revenue and Customs as to criminal penalties assisted us in assessing
whether, on the facts of this particular case, there was a reasonable excuse
39. In Hok
Limited v HMRC the Tribunal considered the issue of common law duty of
fairness where the Appellant, having overlooked or forgotten to file the end of
year returns, had not been notified of the imposition of penalties until the
penalty notice was received. The Tribunal in that case took the view that HMRC
had deliberately desisted from sending a penalty notice, which acts as a reminder.
As we observed earlier, decisions of the First Tier (Tax) Tribunal are not
binding upon us and we had doubts as to whether HMRC’s conduct could be
described as wilful desistance where there is no breach of statutory
obligations on their part. Even if we were to follow the approach taken in Hok
Limited v HMRC, we found that the case is distinguishable on its facts; in Hok
the Appellant believed he did not have to file the returns as the only employee
had ceased employment part way through the year. The Tribunal took the view
that HMRC had not proved that the default would have continued had a reminder
been issued earlier by HMRC to the Appellant. In the case before us, Mr Boyd
was well aware of his responsibilities and we accept that Mrs Shepherd, on his
behalf, attempted to fulfil the obligation of filing the return. The error, one
we accept to have been an honest mistake, was that neither Mr Boyd nor Mrs
Shepherd ensured that confirmation of successful submission was received.
40. The case of Key
Interiors Creative Associates Limited v HMRC wholly differed on the facts;
the Appellant provided evidence in support of his assertion that the return had
been submitted, which was subsequently confirmed in a telephone call to HMRC,
in which the Appellant was told that the return had been received but was
“blocked”. We considered Mr Boyd’s submission to us that perhaps the P35 had
been successfully submitted by Mrs Shepherd but lay dormant on HMRC’s system,
which may, depending on the facts, be analogous to the situation in Key
Interiors Creative Associates Limited v HMRC. We found as a fact that there
was no evidence to support Mr Boyd’s submission, as there had been in the case
cited to us. In our view the case of Key Interiors Creative Associates
Limited v HMRC provided little assistance in determining the issue before
us.
41. HMRC relied on
the case of Schola UK Ltd v HMRC in support of their case. In our view,
this case was comparable to the case before us; in the Schola case the
Appellant entrusted the filing of its 2008/2009 return to its accountants. The
accountants believed they had filed the return by the due date and only became
aware of its non-receipt by HMRC when the first penalty notice was issued.
After inquiries were made, the accountants accepted that they had made an
honest mistake. Judge Tildesley referred to the “limited jurisdiction”
of the Tribunal “which reflects the purpose of the legislation of ensuring
that employers file their returns on time. The Tribunal has no power to
mitigate the penalty.” Judge Tildesley went on to state:
“in considering reasonable excuse the Tribunal
examines the actions of the Appellant from the perspective of a prudent
employer exercising reasonable foresight and due diligence and having proper
regard for his responsibilities under the Tax Acts.”
It was held that the reason for the late filing was the
honest mistake of the Appellant’s agent; a mistake which could have been
avoided if the agent had exercised proper care and consequently the appeal was
dismissed.
42. In our view the
case of Schola reflects the situation in the appeal before us; Mr Boyd
had relied on Mrs Shepherd to file the return within the due date, and an
attempt had made to do so by Mrs Shepherd. Regrettably, the attempt was not
successful and there was no evidence before us that Mrs Shepherd had ensured
that the acknowledgment of receipt of the return had been received. We accepted
that Mr Boyd had made enquiries of Mrs Shepherd and that both genuinely
believed that the return had been filed, however in the absence of ensuring the
receipt of acknowledgment by HMRC, we found as a fact that the actions of Mrs
Shepherd and therefore the Appellant had not been those of a prudent person
exercising reasonable foresight and due diligence.
Decision
43. We were sympathetic
to Mr Boyd’s situation and fully accepted his evidence that he had always
fulfilled his tax obligations. We accepted that he had attempted to so do on
this occasion and that Mrs Shepherd had attempted to file the P35 on 18 May
2010, prior to the due date.
44. We were
impressed by Mr Boyd’s ability to present his arguments with clarity and we
considered his submissions carefully. We were assisted by the authorities
referred to above; in our view there is a stark contrast between the approaches
adopted by Judge Jones QC in Anthony Leachman T/A Whiteley and Leachman v
HMRC, Walton Kiddiwinks Private Day Nursery v Revenue and Customs and Hok
Limited v HMRC as compared with Judge Tildesley in Schola UK Ltd v HMRC.
45. We are not bound
by the authorities cited by the parties. In the absence of a ruling by a higher
court addressing the wider issue of common law fairness, in our view the
correct approach was that taken by Judge Tildesley in Schola.
46. 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.
47. Whilst we agree
it is unfortunate that HMRC’s policy is not to issue first penalty notices
until there is already a four month delay, we do not consider this can afford a
reasonable excuse to the Appellant for its delay in delivering the return. The legislation
gives the Tribunal no power to mitigate the prescribed penalty simply as a
result of the delay in its issue.
48. There is power
to quash a penalty as disproportionate if it is “not merely harsh but plainly
unfair” and no doubt the facts in the cases relied upon by Mr Boyd caused the
Tribunals concern in assessing what could be in certain cases “plainly unfair.”
The penalty of £400 might be considered harsh in the circumstances, but on the
facts of this case we are unable to agree that it was “plainly unfair” and
therefore do not interfere with it on grounds of proportionality or common law
fairness.
49. The only issue
remaining is whether there was a reasonable excuse for the late submission of
the return.
50. There was no
evidence before us upon which we could be satisfied that there was a mistake of
fact between the genuine beliefs held by Mrs Shepherd and Mr Boyd and we did
not find that there was a reasonable excuse in that respect.
51. We were
satisfied that there was no record on HMRC’s system of anything more than an
unsuccessful attempt to file the P35 prior to 23 February 2011 and that there
was no evidence upon which we could be satisfied that the P35 had been dormant
on the system. In the absence of any evidence to the contrary, we accepted that
the employee’s pay and tax/NICs details (P14) for 2009/2010 was filed twice on
23 February 2011, which provided an explanation as to why the tax/NICs shown as
the amount payable was registered on the system as double the correct amount.
52. Having found as
a fact that the P35 had not been filed on 18 May 2010, or indeed any date prior
to 23 February 2011, thus triggering the imposition of a penalty, we concluded
that the issue as to whether or not the penalty imposed as a result falls
within the general criminal sphere, did not assist us in determining whether
there was a reasonable excuse.
53. The error, one
we accept to have been an honest mistake, was that neither Mr Boyd nor Mrs
Shepherd ensured that confirmation of successful submission was received. In
our view, ignorance, inadvertence or oversight in ensuring that the tax
obligations had been fulfilled, cannot amount to a reasonable excuse. We noted
that even once the initial penalty notice had been received in September 2010,
the P35 was not submitted until 23 February 2011. Whilst we accepted Mr Boyd’s
evidence that he had been in constant communication with HMRC to clarify and
rectify the problem, the fact remains that there was a significant delay before
the P35 was filed and as such we found as a fact that even if the Appellant had
been notified of the error earlier, we were not satisfied that the return would
have been submitted without any further delay.
54. We accept the
submission of Mr Chapman that there is no statutory obligation on HMRC to issue
reminders, and that penalty notices are not intended to serve as such. There
are vast numbers of persons who are required to submit tax returns and make
payments of tax. In our view the system would become unworkable if every
taxpayer were relieved of their obligation to file returns until they received
information from HMRC in a form convenient to them. We are satisfied that
sufficient information is available to enable taxpayers to find out how to ensure
their obligations are met and apply themselves diligently to the processes
involved. In this case, we found as a fact that there was no evidence upon
which we could be satisfied that Mrs Shepherd or Mr Boyd had seen confirmation
that the P35 had been submitted and consequently there was a lack of diligence
and care to ensure that the procedure had been correctly followed.
55. We found as a
fact that the P35 was not submitted by the due date and that there was no
reasonable excuse lasting the duration of the period of default.
56. Under section 100B
(2)(a)(ii) of the TMA, the Tribunal confirms the penalties and dismisses the
appeal.
57. 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.
TRIBUNAL JUDGE
RELEASE DATE: 23 November 2011
