[2012] UKFTT 684 (TC)
TC02355
Appeal number:
TC/2012/06824
TYPE OF TAX – appeal
against the penalty imposed for the late payment of PAYE- Schedule 56 Finance
Act 2009—whether insufficiency of funds was a reasonable excuse for the late
payment – no- specifically excluded by paragraph 16 of Schedule 56 – whether
the penalty disproportionate – no it was as laid down by the legislation –
appeal dismissed
FIRST-TIER TRIBUNAL
TAX CHAMBER
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A T HARRIS T/A C
R MANAGEMENT
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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 SANDY RADFORD
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ANTHONY HUGHES
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Sitting in public at Bedford Square , London on 14 September 2012
Mr Farnell for the Appellant
Mr P Reeve, Officer of HMRC,
for the Respondents
© CROWN COPYRIGHT
2012
DECISION
1.
This is an appeal against the penalty of £5,712.16 imposed by HMRC for
the late payment of PAYE during the tax year 2010/11.
The legislation
2.
Penalties for the late payment of monthly PAYE amounts were first
introduced for the tax year 2010/11. The legislation is contained in Schedule
56 to the Finance Act 2009 (“Schedule 56”). Schedule 56 covers penalties for
non- and late payment of many taxes: paragraph 1(1) (which applies to all
taxes) states that a penalty is payable where the taxpayer fails to pay the tax
due on or before the due date.
3.
Paragraph 6 (which relates only to employer taxes such as PAYE) states
that the penalty due in such a case is based on the number of defaults in the
tax year, though the first default is ignored. The amount of the penalty
varies as provided by 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 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 tax comprised in the total amount 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 tax comprised in the total amount 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 tax comprised in those defaults.
In this and other paragraphs of Schedule 56 “P” means a
person liable to make payments.
4.
Under paragraph 11 of Schedule 56 HMRC is given no discretion over
levying a penalty:
11(1) Where P is liable to a
penalty under any paragraph of this Schedule HMRC must –
(a)
assess the penalty,
(b)
notify P, and
(c)
state in the notice the period in
respect of which the penalty is assessed.
(3)
An assessment of a penalty under any paragraph of this Schedule—
(a)
is to be treated for procedural purposes in the same way as an assessment to
tax (except in respect of a matter expressly provided for by this Schedule),
(b)
may be enforced as if it were an assessment to tax, and
(c)
may be combined with an assessment to tax.
5.
Paragraphs 13 to 15 of Schedule 56 deal with appeals. Paragraph 13(1)
allows an appeal against the HMRC decision that a penalty is payable and
paragraph 13(2) allows for an appeal against the amount of the penalty.
Paragraph 15 provides the Tribunal’s powers in relation to an appeal which is
brought before it:
(1)
On an appeal under paragraph 13(1)
that is notified to the tribunal, the tribunal may affirm or cancel HMRC’s
decision.
(2)
On an appeal under paragraph 13(2)
that is notified to the tribunal, the tribunal may-
(a)
affirm HMRC’s decision, or
(b)
substitute for HMRC’s decision
another decision that HMRC had the power to make.
(3)
If the tribunal substitutes its
decision for HMRC’s, the tribunal may rely on paragraph 9-
(a)
to the same extent as HMRC…[…],or
(b)
to a different extent, but only if
the tribunal thinks that HMRC’s decision in respect of the application of paragraph
9 was flawed.
6.
Paragraph 9 (referred to in paragraph 15) states:
(1)
If HMRC think it right because of special circumstances, they may reduce the
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.
(3)
In sub-paragraph (1) the reference to reducing a penalty includes a reference
to-
(a) staying
a penalty, and
(b) agreeing
a compromise in relation to proceedings for a penalty.
7.
Paragraph 16 contains a defence of reasonable excuse, but an
insufficiency of funds is not a reasonable excuse unless attributable to events
outside P’s control. Nor is it such an excuse where P relies on another person
to do anything unless P took reasonable care to avoid the failure; and 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 has ceased.
Background and facts
8.
The appellant is a partnership which was previously run by Alan Harris
and his wife. On 1 April 2009 Mr Farnell bought into the partnership. In the
first year two of their clients went into receivership owing £78,000. The
appellant now banks with HSBC and factors their invoices. HSBC provides 80% on
receiving the invoice and the appellant cannot borrow money from anyone else.
As a result of the clients who went into receivership HSBC clawed that money
back. The PAYE payments were therefore made late, but only a few days late,
because of the cash flow.
9.
The appellant gives contractual advice to construction companies and
consists mainly of quantity surveyors.
10.
Mr Farnell stated that Mrs Harris had now left the business and
effectively his joining on 1 April 2009 had been a new start-up.
11.
He stated that both Mrs Harris and their previous agent had not been pulling
their weight. They had a new agent now and were paying on time. Instead of
relying on one single client they now had 30 or 40 a month.
Appellant’s submissions
12.
Mr Farnell submitted that the Tribunal ought to consider the
proportionality of the penalty as the payments were made only a few days late
whilst other tax payers made payments which were far later yet paid the same
penalty.
13.
He submitted that once he took over the cash flow had improved and the
bad debts were far fewer.
14.
The appellant submitted that in line with the case of Dudman Group
Limited [2011] UKFTT 771 (TC) denying the appellant’s appeal on the grounds
that cash fluctuations in the appellant’s business were neither isolated nor
unusual should not be applicable. Similarly to the Dudman case the
appellant had already exercised reasonable foresight and due diligence by
having the HSBC factoring facility in place in order to do all the appellant
could to collect amounts due to it. It was therefore the appellant’s assertion
that it could not avoid the insufficiency of funds that led to the comparatively
brief periods of default.
HMRC’s submissions
15.
Mr Reeve submitted that almost all the PAYE payments were made late and
this was accepted by the appellant.
16.
He submitted that paragraph 16 (2) of Schedule 56 specifically excluded
cash flow as a reasonable excuse unless such cash flow was outside the
appellant’s control.
17.
He submitted that the appellant had paid its PAYE late in previous years
and so nothing had changed in their behaviour. He therefore submitted that the
alleged cash flow problem had not changed things.
18.
Mr Reeve referred to the case of Rodney Warren & Co [2012] UKFTT 57 (TC) in which Judge Hellier stated at paragraph 45
“But in order for an event
to exculpate a taxpayer from a default it must a reasonable excuse ‘for’ the
default: in other words there must be a causal link between the event and the
default. In this case that link did not seem to be present because in the
previous year where there had not been the additional delay in payment by the
Legal Services Commission the appellant had been late in payment.”
19.
Mr Reeve referred to paragraph 6 of the Dudman case in which Lord
Donaldson’s judgement in the Court of Appeal in the leading case of Customs
and Excise Commissioners v Steptoe [1992] STC 757 was quoted:
“If
the exercise of reasonable foresight and due diligence and a proper regard for
the fact that the tax would become due on a particular date would not have
avoided the insufficiency of funds which led to the default, then the tax payer
may well have a reasonable excuse for non-payment, but that excuse would be
exhausted by the date of which such foresight, diligence and regard would have
overcome the insufficiency of funds.”
20.
Mr Reeve submitted that the factoring did not cause the appellant to pay
late because they had been paid late anyway.
21.
He submitted that a penalty warning notice had been issued on 28 May 2010 although there was no legal requirement on HMRC to issue the warning.
Additionally the new penalty regime had been advertised extensively in various
Employer Bulletins and on the HMRC website. HMRC had phoned the appellant on
various occasions and Mr Reeve produced a record of these calls.
22.
Mr Reeve submitted that proportionality was not a reasonable excuse for
making late payments of PAYE. The legislation had been made by Parliament and
it was not for the Tribunal to challenge the legislation because such a
challenge was a matter for judicial review.
23.
He submitted that the penalty was based on a percentage of the amount of
the PAYE which was paid late. The percentage rate of the penalty increased
with the number of defaults so Mr Reeve submitted that it was fair and
proportionate in any case.
Findings
24.
The Tribunal found that in accordance with the legislation the penalty
had been correctly charged.
25.
The Tribunal found that they appellant had no reasonable excuse as
insufficient funds are specifically excluded as a reasonable excuse by the
legislation unless there is an event outside the appellant’s control that
caused it.
26.
The Tribunal considered whether the fact that two of the appellant’s
clients went into receivership owing £78,000 was a factor outside the
appellant’s control but the Tribunal found that as in the previous two years
the appellant had hardly ever paid on time, this was the most likely reason for
the late payments that are the subject of the appeal.
27.
The Tribunal found that as in the past three years the appellant had
only paid on time on four occasions it was unlikely that the cash flow had
changed things very much.
28.
The Tribunal found that the penalty was not disproportionate as it had
been imposed in accordance with the legislation which increased the penalty
according to the number of defaults in the year.
29.
The Tribunal found that paragraph 11 of Schedule 56 imposed a duty on
HMRC to charge a penalty even if the payment was only one day late.
30.
The Tribunal found that HMRC was acting in accordance with this
legislation.
Decision
31.
The appeal is dismissed and the penalty is hereby confirmed.
32.
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.
SANDY
RADFORD
TRIBUNAL JUDGE
RELEASE DATE: 7 November 2012
