[2012 UKFTT 628 (TC)
TC02304
Appeal number:
TC/2011/05332
Penalty – late payment of
PAYE – FA 2009, Sch 56 – reasonable excuse – no – appeal dismissed
FIRST-TIER TRIBUNAL
TAX CHAMBER
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VIDHANI BROTHERS
LIMITED
T/A TERITEX
SPORTSWEAR
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Appellant
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- and -
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THE
COMMISSIONERS FOR HER MAJESTY’S
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Respondents
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REVENUE &
CUSTOMS
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TRIBUNAL:
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JUDGE J. BLEWITT
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MRS M. HANDS
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Sitting in public at Nottingham on 21 August 2012
Mr Vidhani, the Appellant, was
unrepresented
Mr Foster, of HM Revenue and
Customs, for the Respondents
© CROWN COPYRIGHT
2012
DECISION
1.
This is an appeal against a penalty in the sum of £2,881.30 for late
payment of PAYE payments during the tax year 2010/11.
The legislation
2.
Although the legislation was not in dispute, it may be helpful to set
out the relevant provisions at this point.
3.
Schedule 56 Finance Act 2009 provides:
1 (1) A penalty is payable by
a person (“P”) where P fails to pay an amount of tax specified in column 3 of
the Table below on or before the date specified in column 4.
(2) Paragraphs 3 to 8 set
out—
(a) the circumstances in
which a penalty is payable, and
(b) subject to paragraph 9,
the amount of the penalty.
(3) If P's failure falls
within more than one provision of this Schedule, P is liable to a penalty under
each of those provisions...
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PRINCIPAL AMOUNTS
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1
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Income tax or capital gains
tax
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Amount payable under
section 59B(3) or (4) of TMA 1970
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The date falling 30 days
after the date specified in section 59B(3) or (4) of TMA 1970 as the date by which the amount must be paid
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2
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Income tax
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Amount payable under PAYE
regulations . . .
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The date determined by or
under PAYE regulations as the date by which the amount must be paid
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6(1) P is liable to a penalty, in relation to each tax, of
an amount determined by reference to—
(a)
the number of defaults that P has made during the tax year (see sub-paragraphs
(2) and (3)), and
(b)
the amount of that tax comprised in the total of those defaults (see
sub-paragraphs (4) to (7))...
...
(4) If P makes 1, 2 or 3 defaults during the tax year, the amount of the
penalty is 1% of the amount of the tax comprised in the total of those
defaults.
(5)
If P makes 4, 5 or 6 defaults during the tax year, the amount of the penalty is
2% of the amount of the tax comprised in the total of those defaults.
(6)
If P makes 7, 8 or 9 defaults during the tax year, the amount of the penalty is
3% of the amount of the tax comprised in the total of those defaults.
(7)
If P makes 10 or more defaults during the tax year, the amount of the penalty
is 4% of the amount of the tax comprised in the total of those defaults.
Special reduction
9(1)If HMRC think it right
because of special circumstances, they may reduce a penalty under any paragraph
of this Schedule.
(2)In sub-paragraph (1)
“special circumstances” does not include—
(a)ability to pay, or
(b)the fact that a potential
loss of revenue from one taxpayer is balanced by a potential over-payment by
another.
16 (1) If P satisfies
HMRC or (on appeal) the First-tier Tribunal orUpper Tribunal that there is a
reasonable excuse for a failure to make a payment-
(a) liability to a penalty
under any paragraph of this Schedule does not arise in relation to that
failure, and
(b) the failure does not
count as a default for the purposes of paragraph 6 …
(2) For the purposes of
sub-paragraph (1)—
(a) an insufficiency of funds
is not a reasonable excuse unless attributable to events outside P's control,
(b) where P relies on any
other person to do anything, that is not a reasonable excuse unless P took
reasonable care to avoid the failure, and
(c) where P had a reasonable
excuse for the failure but the excuse has ceased, P is to be treated as having
continued to have the excuse if the failure is remedied without unreasonable
delay after the excuse ceased.
Facts
4.
Mr Vidhani is the sole shareholder of the Appellant Company, which was
set up by his father in approximately 1978 and which has been run by Mr Vidhani
for the last 18 years. The Company, which has between 20 and 25 members of
staff, manufactures football scarves and ancillary souvenir products.
5.
The Appellant made 11 late payments under the relevant PAYE and NIC
regulations in the year ended 5 April 2011. A penalty notice was sent to the
Appellant on 7 June 2011; the penalty was set at a rate of 4% in accordance
with the legislation due to the number of late payments made by the Appellant.
The Appellant’s case
6.
The Appellant appealed the penalty to HMRC by Notice of Appeal dated 11
June 2011. A letter of the same date annexed to the Notice of Appeal set out
the grounds upon which the Appellant relied, which can be summarised as
follows:
·
A letter dated 27 May 2011 received by the Appellant stated that “You
can avoid these charges by paying any overdue PAYE now and make sure that all
payments are made on time from now on.” The letter clearly provides an
option to avoid paying a penalty by complying with the requirements of the
offer. Mr Vidhani acknowledges that the warning relates to the forthcoming
2011/12 year, but states that, in his opinion, it does not specifically state
that the offer is only applicable to payments made in 2011/12;
·
No warning letter regarding late payments was received in respect
of 2010/11;
·
Following May 2011, all payments were made before the deadlines;
·
It is unfair to allow penalties to accumulate over the year
without notifying a taxpayer;
·
The penalty is disproportionate to the minor delays in payment.
7.
At the hearing, Mr Vidhani helpfully provided the Tribunal with a
written chronology of the background to this case. It would not be helpful to
simply repeat the contents of the document verbatim, however the main points
fell into two categories: the actions of HMRC and those of the Tribunal.
8.
In summary, Mr Vidhani was dissatisfied by the lack of response received
from HMRC and the errors made, for example by advising that the appeal was made
out of time.
9.
In respect of the Tribunal, the hearing had been postponed on a number
of occasions. On one particular occasion Mr Vidhani had attended for the
hearing at Birmingham only to be told that the Court had insufficient time to hear
the case, which caused Mr Vidhani unnecessary expense and loss of time.
10.
The key points made by Mr Vidhani were:
· That
he had only received the penalty notice a few days after the warning letter
relating to 2011/12 which was complied with;
· It
is unfair to impose a retrospective penalty and allow penalties to accumulate
without notice;
· HMRC
failed to provide a breakdown of the calculation;
· The
penalty is disproportionate and wrong in a democratic system;
· HMRC
failed to adequately publicise the new penalty system.
11.
In answer to questions from the Tribunal Mr Vidhani confirmed that he
had been unaware of the change in legislation. He could not recall receiving
the warning letter issued to him by HMRC on 28 May 2010 or the CD rom and
employer bulletins issued to all employers by HMRC prior to the implementation
of the legislation. Mr Vidhani was adamant that he had not been verbally warned
about penalties in telephone calls with HMRC.
12.
On behalf of HMRC, Mr Foster submitted that the penalty is set by
statute and is graduated on the basis of the number of late payments made. In
those circumstances, the penalty cannot be deemed to be unfair. Furthermore,
the way in which the legislation applies means that it is not possible to
calculate the amount of a penalty until the end of the tax year.
13.
Mr Foster took us through the publicity both prior to and after the
implementation of the new system. HMRC issued paper employer bulletins to all
employers in September 2009 and April 2010. Thereafter electronic bulletins
were sent which also drew an employer’s attention to the legislation.
Information is readily available on HMRC’s website and a CD rom was issued to
all employers in February 2010. Mr Foster also exhibited logs of telephone
calls between HMRC and Mr Vidhani which showed that a warning as to penalties
was given on 25 November 2010.
14.
As regards the letter dated 27 May 2011 from HMRC to the Appellant which
advised that penalties could be avoided, Mr Foster submitted that it is clear
that the letter relates only to the year 2011/12 which is printed at the head
of the letter. Mr Foster contended that there was no suggestion that the letter
related to the previous years’ penalties and it would be unreasonable to infer
such.
Discussion and Decision
15.
We considered Mr Vidhani’s written and oral submissions carefully. We
were satisfied that HMRC had publicised the late payment penalties for PAYE
extensively both prior to and after their implementation. The legislation does
not require HMRC to issue warnings to individual employers, yet HMRC so did by
issuing a letter to the Appellant in May 2010. Whilst Mr Vidhani did not recall
receiving this letter or the employer bulletins, he was not able to say with
certainty that they were not received. We have seen a number of letters of correspondence
which reached the Company without difficulty and in those circumstances we
found on the balance of probabilities that non-receipt was unlikely. In our
view, Mr Vidhani’s ignorance cannot amount to a reasonable excuse or a special
circumstance; no reasonable employer aware of his responsibilities to make
payments of PAYE prior to the deadline could fail to have been aware of the
information published by HMRC.
16.
The legislation on PAYE penalties is clear; the rate is set by the
number of late payments in the tax year by the employer and HMRC correctly
charged the penalty at the set rate of 4%. The penalty can only be assessed
once the total number of late payments for a particular tax year is known. We
found as a fact that any failure by HMRC to issue regular warnings about
accruing penalties could not amount to either a reasonable excuse or special
circumstances.
17.
As to the issue of proportionality, the test is whether the scheme is
not merely harsh but plainly unfair. We found as a fact that the imposition of
the penalty in this case, whilst no doubt considered by Mr Vidhani to be harsh,
was not plainly unfair. The legislation seeks to provide an incentive to
employers to adhere to their payment obligations and the imposition of
penalties where they fail to comply with these requirements cannot in our view
be described as lacking reasonable foundation.
18.
As to the ancillary matters raised by Mr Vidhani in respect of the
actions of HMRC and the Tribunal, we noted the following: as regards HMRC, we
had insufficient information before us to enable us to make any comment. If Mr
Vidhani feels dissatisfied, the proper avenue would be to contact HMRC’s
internal complaints department. We were invited by Mr Vidhani to consider the
actions of HMRC as part of this appeal however we found as a fact that this was
a matter which did not have any bearing on the issues to be determined, namely
whether a reasonable excuse or special circumstances existed in relation to the
late PAYE payments. In respect of the complaint made against the Tribunal, it
is regrettable that the case was postponed on a number of occasions however we
noted that Mr Vidhani had been compensated for his loss of earnings and we did
not consider that the length of time which the Tribunal had taken to compensate
him had any bearing on the issues before us. In our view these matters raised
by Mr Vidhani had no prejudicial effect on his appeal and had no bearing on the
issues to be determined.
19.
The appeal is dismissed.
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.
J.
BLEWITT
TRIBUNAL JUDGE
RELEASE DATE: 8 October 2012
