[2012] UKFTT 140 (TC)
TC01835
Appeal number: TC/2011/06536
Penalties
for late payment of PAYE and NIC – Schedule 56 Finance Act 2009 - eleven late
payments – penalties levied at 4% where more than ten late payment failures –Appellant
unaware of progressive nature of penalty regime and disputed number of late
payments
FIRST-TIER TRIBUNAL
TAX
R
A and J C ATKINSON LTD Appellant
t/a MINSTER CLEANING SERVICES
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL: MICHAEL S CONNELL (TRIBUNAL JUDGE)
Sitting in public at Alexandra
House Manchester on 25 October 2011
For the Appellant Mr R
Atkinson
For the Respondents Mrs K
Douglas, Officer of HM Revenue and Customs
© CROWN COPYRIGHT
2011
DECISION
1. Having
orally given my Decision at the conclusion of the hearing to partly allow this
appeal, the following are full written findings of fact and reasons for the
Decision.
2. R
A and J C Atkinson Limited t/a Minster Cleaning Services (the Appellant) appeal
penalties totalling £3,040.56 charged by HMRC under Schedule 56 Finance Act
2009 for the late payment of PAYE and National Insurance Contributions during
the tax year 2010-11.
3. HMRC
say that the PAYE and NIC for each of the 12 months in 2010-11 were not paid on
time. The relevant Regulations provide that an employer is liable to a penalty
of an amount determined by reference to the number of defaults made during the
tax year. Under the Regulations the first default during the tax year does not
count as a default and therefore does not incur a penalty. In this case, HMRC
say that there were 11 other late payment failures and that accordingly under
the Regulations a penalty of 4% was charged on the total amount of the default.
4. The
Appellant’s grounds of appeal are that they were unaware of the introduction of
the penalty regime, and in particular the progressive nature of the penalties
imposed for defaults as the number of defaults increased throughout the year.
The Appellant also appeals on the basis that the penalties have been applied,
in their view, retrospectively, whereas had they been applied as and when
defaults occurred the total penalties would have been significantly less. The
Appellant also appeals on the basis that, in respect of one of the penalties
they had agreed a Time to Pay Arrangement with HMRC, and that two other monthly
payments had actually been paid on time.
5. The
evidence before the Tribunal included the Appellant’s notice of appeal to the
Tribunal; copy HMRC recorded transcripts of telephone and other communications
between HMRC and the Appellant during the tax year; a copy of relevant extracts
from HMRC Employer Bulletin relating to the introduction of late payment
penalties and oral evidence by Mr Roy Atkinson.
Relevant Legislation
6. Regulation
69 Income Tax (PAYE) Regulations 2003 states that tax which an employer is
required to deduct under Regulation 68(2) must be paid either within 17 days
after the end of the tax period where paid electronically, or within 14 days
after the end of the tax period in any other case. Regulation 67 and Schedule 4
to the Social Security (Contributions) Regulations 2001 imposes the same
requirements on an employer for the purpose of paying earnings related National
Insurance Contributions. The month end is the 5th of each month and therefore
electronic payments are due by the 22nd of each month and the
penalty date is the 23rd. Manual payments are due on the 19th
of each month and therefore the penalty date is the 20th.
7. Regulation
6 of Schedule 56 Finance Act 2009 states : -
6(1)
.. an employer is liable to a penalty of an amount determined by reference to
the number of defaults made during the tax year
6(2)
a default occurs if the employer fails to pay an amount of tax in full on or
before the due date, that is the 19th or 22nd of the
month (depending on the method of payment)
6(3)
the first default during the tax year does not count as a default and therefore
does not incur a penalty
Paragraphs
6(4) to (7) sets out the progressive nature of the penalty regime from 0% to 4%
as the amount of defaults increase throughout the year
Paragraph
16 says that is there is a reasonable excuse for the failure to pay on time
then there will be no penalty, but under paragraph 16(2) an insufficiency of
funds is not a reasonable excuse unless attributable to events outside the
employer’s control, and if there was a reasonable excuse for the failure that
excuse is deemed to have continued if the failure is remedied without
unreasonable delay once the excuse has ceased.
8. The
Appellant’s payments for PAYE and NIC were late for each of the 12 consecutive
tax months ending 5 April 2011. Because there were 10 or more late payment
failures under Schedule 56 Finance Act 2009 paragraph 6(7) the rate of penalty
in respect of the total amount of defaults was 4%. The Appellant’s payment for
the first month of the tax year end 5 April 2011 was due on 19 May 2010, but
paid on 19 June 2010. Because this was a first default it did not count as a
default and therefore the Appellant did not incur a penalty. Each of the
payments made by the Appellant for months 2 – 10 were paid at least one month
late, and on most occasions two months late. HMRC say that the Appellant’s
payment in respect of month 11 was paid on 22 March 2011 and the payment made
in month 12 was paid on 21 April 2011. The Appellant disputes this and says
that each of those payments was made on the 19th of the month.
HMRC’s contentions
9. Mrs
Douglas on behalf of HMRC submitted that the Appellant did not have a
reasonable excuse for the late payments. She said that penalties for late
payments had featured regularly in the Employer Bulletin which is published on
the internet and provides information for employers regarding any changes in
legislation and penalty charges. Much of the publicity she said, relating to
the new late payment penalty regime for PAYE, was advertised extensively before
and after they came into effect. An employer pack featuring a CD-ROM was mailed
to employers in February 2010, flyers mailed to contractors and published on
the HMRC website as well as being distributed at face to face events organised
by HMRC. Late payment penalties were published in guidance and employer
helpbooks and detailed in national trade and regional publications. Miss
Douglas says that there is a requirement for employers to keep up to date with
changes in policy and legislation that may affect them, and that it was
incumbent on the Appellant to ensure that its payments were made on time.
10. Mrs Douglas also
said that a warning letter was issued to the Appellant on the occasion of its
first default in May 2010. The Appellant disputes having received the warning
letter but Mrs Douglas said there was no reported problems with HMRC’s
automated outputs on that day and the letter was not returned to HMRC as
undelivered.
11. HMRC’s copy
transcripted record of communications with the Appellant show that HMRC had a
number of telephone calls with the Appellant during the tax year and contact
was made during months 1, 5, 6, 9 and 12 and that on each of these occasions
the Appellant was advised of the penalties. Again, the Appellant disputes this,
saying that whilst they may have been aware that penalties would be incurred,
they were not aware of the progressive nature of those penalties. Mrs Douglas
therefore says HMRC refutes that the Appellant was not aware of the penalty
position during the tax year 2010-11.
12. Mrs Douglas
acknowledged that a Time to Pay Arrangement had been put in place for month 10,
but explained that this was made on 9 March 2011 and therefore after the due
date of payment, being 22 February 2011. A Time to Pay Arrangement had to be
agreed before a due date otherwise a late payment still counted as a default.
Paragraph 10 of Schedule 56 Finance Act 2009 allows HMRC to suspend a penalty
provided payments are made as agreed and the amounts included in the Time to
Pay Arrangement were not already overdue.
13. Mrs Douglas said
that the Appellant’s payments for months 11 and 12 were both paid late, having
been received by HMRC on 22 March 2011 and 21 April 2011, both having fallen
due for payment on the 19th of those months.
Appellant’s contentions
14. Mr Atkinson in
his submissions reiterated the Appellant company’s grounds of appeal. He said
that in respect of periods 1 – 9, not being an internet user, he was unaware of
the late payment penalties until it was mentioned to him by HMRC at the end of
March 2011. He denied having received any warning letters but accepted that he
had had a number of conversations with HMRC regarding his inability to pay PAYE
as and when it fell due. Mr Atkinson said that the retrospective and
progressive nature of penalties was unfair, and felt that when the instalment
arrangement was made in respect of period 10 some mention should have been made
of penalties which would be applied at the end of the year. Mr Atkinson
maintained that payments in respect of periods 11 and 12 were made by 18 March
and that payments appeared to be taking more than two weeks to clear through
his bank, but that in any event was a problem of HMRC’s making, not his. He
said that cheques had been sent to HMRC before the 19 March and before 19
April. He accepted that payments in respect of months 1 – 9 had been paid late.
Decision
15. The Tribunal accepts that HMRC has correctly applied
the legislation in this case. Penalties have been correctly charged in respect
of months 1 – 10 and the Appellant has not provided a reasonable excuse that
would allow liability to the penalties to be reconsidered. The Tribunal accepts
that payments were made on time in respect of months 11 and 12. Accordingly the
Tribunal determines that the Appellant has paid PAYE late in respect of months
1 – 10 and therefore penalties are payable on months 2 – 10 of 3% of the total
amount of those defaults pursuant to paragraph 6(6) of Schedule 56 Finance Act
2009.
15. 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.
MICHAEL S CONNELL
TRIBUNAL JUDGE
RELEASE DATE: 17 February 2012
