Recent tribunal cases illustrate that 'reasonable' means just that and cannot apply to shortage of funds, reliance on a third party or undue delay
Brentham Club Ltd is a not-for-profit organisation, set up to promote sport among young people.
During 2011/12, there were 11 late filings and late payment of PAYE returns, resulting in a total penalty of £2,059.91.
The facts were not in dispute, but the appellant asserted that it had a reasonable excuse in that it is a voluntary body with limited resources available to it. It had spent a lot of money undertaking an extension and was in financial difficulties.
HMRC’s case was that the club must comply with the tax code, and the difficulties resulted in a decision to make expenditure and that the taxpayer should not fund its short-term cash problems. The appeal was dismissed.
For more information, visit the 'Related links' section on this page.
Eurolet LLP challenged the imposition of three default surcharges for late payment of its VAT liability during 2011/12.
The company had been within the default surcharge regime for some time so the surcharges, which are progressive, were at 10 per cent for the first and 15 per cent (the maximum) for the other two; the total surcharge was £4,971.22.
Mr Vincent, representing the company, argued that the company was struggling to continue trading and the surcharge was an unfair burden on business.
However, the judge stated that the surcharges were correctly imposed and there was nothing the tribunal could do but dismiss the appeal.
For more information, visit the 'Related links' section on this page.
Simply Glass Ltd appealed against a surcharge of £1671.80 for the VAT period to July 2013. The return was filed on time on 29 August 2013.
Payment was due electronically on or before 7 September. A part payment reached HMRC’s bank on 29 August and the balance of £16,817.09 on 9 September.
The appellant submitted that the person responsible for dealing with this was on holiday and dealt with it immediately upon her return; the director, who would otherwise have dealt with it, was off sick, so the payment was two days late. It was requested that the penalty be reduced or waived.
HMRC pointed out that the company was already within the penalties regime and a time to pay application had been made out of time and was refused.
Lack of funds is not a reasonable excuse and a holiday is not an unexpected or unusual event. The appeal was therefore dismissed.
For more information, visit the 'Related links' section on this page.
Contrast this with the case of Trinity Mirror plc, which appealed against a default surcharge arising by reason of a delay of one day in filing its VAT return and payment.
The surcharge was initially assessed at £95,900 but later reduced to £70,909.44.
Trinity Mirror is a large publisher of newspapers and magazines. In January 2007, HM Customs & Excise brought the company within the payments on account regime for VAT for the period April to July 2007 and subsequent periods.
Trinity Mirror was required to make two payments of £1,546,965 each by 31 May and 29 June 2007 and file its VAT return and make a balancing payment of £5,467,130.92 by 1 August 2007.
The company made the two payments on account and filed its VAT return on time. It made its balancing payment in full on 2 August – one day late.
As a result, a VAT surcharge liability notice was sent to Trinity Mirror. The surcharge liability period was from 31 August 2007 to 1 July 2008.
In respect of VAT period 1 October 2007 to 31 December 2007, the company was required to make two payments of £1,546,965 by 30 November and 31 December 2007 and file its VAT return and make a balancing payment of £4,795,005.45 by 30 January 2008.
Trinity Mirror made its two payments on account on time. It filed its VAT return and made its balancing payment in full on 31 January 2008 – one day late.
These two defaults were the first defaults since the effective date of the company’s registration on 10 March 1986. As a result of the second late filing, HMRC served a surcharge liability extension notice on Trinity Mirror; the surcharge period was extended until 30 December 2008.
The previous default was more than nil, so the surcharge was levied at 2 per cent. HMRC assessed Trinity Mirror to the surcharge of £95,000.
Trinity Mirror requested reconsideration on the basis that the surcharge was disproportionate in view of the company’s history as a compliant taxpayer and the short length of the delays. HMRC wrote confirming the imposition and extension of the surcharge period and assessment.
Trinity Mirror paid the sum and later made a number of voluntary disclosures of VAT overpaid amounting to £1,249,681.20.
On 9 February 2010 Trinity Mirror wrote to HMRC following the First-tier Tribunal’s decision in favour of Enersys Holdings UK Ltd v Revenue and Customs Commissioners [2010] UKFTT 20 (TC), repeating its claim that the surcharge was disproportionate and claiming repayment of the £95,000.
The assessment was upheld. HMRC later decided not to pursue its appeal against the Enersys decision to the Upper Tribunal.
In the event, it was held that an assessment was not proportionate, therefore not compliant with the EU law of proportionality, in charging such a large amount upon a normally compliant taxpayer in respect of a default of one day.
The First-tier Tribunal cannot decide the amount of a penalty, so it discharged the penalty.
For more information, visit the 'Related links' section on this page.
Bletchingley Skills Centre is a charity that provides adult education classes for disabled people.
The centre has three employees - one full time and two part time - as well as some unpaid volunteers, none of whom claim expenses.
It appealed against the imposition of two penalties for late filing of the employer’s annual return (Forms P35 and P14) for the year ended 5 April 2011.
The first penalty was issued on 26 September 2011 in the amount of £400 and the second on 17 October 2011 in the amount of £100.
The legislation requires the returns P14 for each person and P35 to be submitted by 19 May following the end of the fiscal year. Where the number of employees is 50 or fewer, the penalty is £100 per month.
The treasurer attempted to submit the forms electronically on 1 May, as he was aware of the time limits. He had to submit four forms - one P35 and three P14s - and managed to submit two of them. When he tried to submit the other two, he turned off the computer after about 10 minutes, before receiving the ‘accepted’ notification.
On 12 October, after receiving the penalty notice, the treasurer went online and discovered that two of the forms had been sent to HMRC but two were outstanding.
The forms submitted on 1 May showed an underpayment which he immediately paid. He completed the submission of the two outstanding but the date of submission of all four was changed to 12 October 2011.
The treasurer stated that HMRC had waited four months before sending out the notices - a familiar complaint but not a reasonable excuse - and that the charity was small, with few resources to pay the penalties.
The tribunal dismissed the appeal as the treasurer had attempted to file the returns but had failed to check that they had been received.
The tribunal has no power to remit penalties and can only rule on reasonable excuse. It did, however, express the view that HMRC does have that power and this would be a deserving case to exercise it.
For more information, visit the 'Related links' section on this page.
Zoki UK Ltd appealed against two decisions by HMRC.
The first was to impose flat-rate penalties of £1,000 for each of the accounting periods ending 30 April 2008 and 30 April 2009, with tax-related penalties for late filing of company tax returns in the sum of £1,567.30 for 2008 and £1,908.30 for 2009.
The second decision was to impose penalties of £1,200, £700 and £300 respectively for the tax years to 5 April 2008, 5 April 2010 and 5 April 2011 for late submission of the employer’s annual return.
The grounds for both appeals were that at the end of 2007, the company’s book-keeper had had a mental breakdown which necessitated a lot of time off.
This coincided with a downturn in business due to the recession and the company could not afford to pay another book-keeper. The book-keeper has now recovered and the accounts and tax affairs are up to date.
The amount of penalties is daunting for a small company and it is struggling to pay.
HMRC stated that it is the responsibility of the appellants to ensure that their tax obligations were met. The CT guide states that, where there is any difficulty in filing the return on time, HMRC should be warned.
The appellants could have avoided the tax-related penalty by estimating and paying the tax within 18 months of the end of the relevant accounting period.
In respect of the second appeal, HMRC contended that the responsibility for filing returns lay with the employer; the appellants registered as employers in 1996 and ought to be aware of their obligations.
There is no record of the appellants advising HMRC of their difficulties or seeking advice.
There was no reasonable excuse and both appeals were dismissed.
For more information, visit the 'Related links' section on this page.
Media Orb Ltd appealed against HMRC's decision to impose a default surcharge of £556.34 for the period to July 2013.
The return was filed electronically on time, but payment was due electronically on or before 7 September 2013 and was received by HMRC on 20 September 2013.
The appellants had been told that lack of funds cannot be a reasonable excuse for late payment; they submit that the late payment was caused by circumstances beyond their control.
At the time the VAT was due, the company was owed over £25,000 by various clients who had promised payment by the VAT due date.
HMRC had sent the appellants a ‘help letter’ - sent to traders with a turnover of £150,000 or less the first time they fail to pay their VAT on time - for the previous period.
The appellants therefore entered the default surcharge regime in the period to January 2013. They had called the Business Payment Support Service on 7 March 2013 and the financial consequences of a further default were explained to them.
The tribunal considered that the reason for late payment was financial difficulties due to failure by customers to pay on time, but this was a normal business risk and not a reasonable excuse for late payment.
The appeal was dismissed.
For more information, visit the 'Related links' section on this page.
Liberty Scaffolding Ltd appealed against a surcharge of £1,039.54 for late payment of VAT for the quarter 1 June 2013 to 31 August 2013.
Although the appeal was out of time, HMRC did not object and the tribunal felt that it was in the interests of justice to proceed.
The company had been within the default regime from the quarter ended August 2012. Three surcharge liability notices had been issued before the surcharge liability notice for the quarter ended on 31 August 2013:
The return for the quarter ended August was submitted on time, but the tax was paid late. A surcharge liability notice was issued at 10 per cent of the late paid tax.
The company requested a review and HMRC upheld the penalty.
Liberty Scaffolding Ltd appealed, stating that it was a small company that was having difficulty paying its debts, as customers were delaying payment; reasonable excuse was given and the surcharge was not fair or proportionate.
The appeal was dismissed and the penalty affirmed.
For more information, visit the 'Related links' section on this page.
Timothy Cooke appealed against a late payment penalty of £10,004 in respect of capital gains tax for the year ended 5 April 2012 paid late.
The appellant filed his tax return for the year by 28 December 2012 and filed an amendment on 20 January 2013. The tax liability was £100,065.50 and this remained unpaid until 24 October 2013, together with a penalty payment.
In April 2011, Mr Cooke had sold shares in a company he worked for, realising £380,000 on which the capital gains tax was £100,065.50 payable on 31 January 2013. He had been in financial difficulties and used £70,000 of the proceeds to pay off his individual voluntary arrangement and a further £30,000 to discharge a loan.
He was living with his wife and children in a property worth £125,000, on which there was a mortgage of £140,000. In May 2011, Mr and Mrs Cooke bought a new property using most of the balance of the proceeds of the share sale.
Mr Cooke said that at the time he had proposed to raise a mortgage of £100,000 in order to pay the capital gains tax due by 31 January 2013. Unfortunately, Mr and Mrs Cooke separated in March 2012 and Mrs Cooke started divorce proceedings.
Mr Cooke wished to sell the property in order to pay the tax, but was prevented from doing so as Mrs Cooke’s solicitor arranged for a matrimonial restriction preventing sale or mortgage of the property without his wife’s consent.
The property was eventually sold on 24 October 2013 and Mr Cooke paid the tax on the same day.
The appellant claimed that he had a reasonable excuse for late payment because of insufficiency of funds caused by events outside his control, and also because HMRC had told him that penalties would not be levied.
HMRC denied this and claimed that Mr Cooke could have stayed at his previous address and paid the tax immediately, instead of moving and investing all the proceeds into the new house.
The tribunal accepted that Mr Cooke could not have foreseen the breakdown of his marriage and this unforeseen event was outside his control.
The appeal was allowed and the penalties discharged.
For more information, visit the 'Related links' section on this page.
JAG Interiors Ltd appealed against late-filing penalties in the sum of £3,600 imposed for late submission of P35 returns for 2009/10, 2010/11 and 2011/12.
Due by 19 May each year, they were not received until 24 June 2013. Was there a reasonable excuse?
The origin lies in the operation of a time to pay agreement concerning the deferred payment of £7,234.80; this amount is not under appeal.
The agreement provided that the first payment of £716.25 should be paid on 15 November 2009, followed by £500 on 15 December 2009 and the same monthly payment until 15 May 2010.
It was a condition of the agreement that the taxpayer should keep its tax affairs up to date and submit any tax returns on time.
All went according to plan until the payment due in February 2010 was sent and £400 was reallocated by HMRC to another liability, leaving only £100 for the monthly time to pay agreement.
HMRC took the view that the agreement had been breached and in October 2010 ended it. The appellant considered that this was a ‘misappropriation’ and ceased to submit P35 returns until HMRC had dealt with the dispute.
This matter was not within the jurisdiction of the tribunal, whose duty was only to consider whether there was a reasonable excuse. It concluded that there was not and dismissed the appeal.
For more information, visit the 'Related links' section on this page.
Peter J Howes appealed against penalties of £2,895 for failure to pay his self-assessment tax for the year ended 5 April 2011 on time.
The tax return was paid on time and this produced a tax liability of £19,310.20 which was due for payment by 31 January 2012 but was not paid until 31 December 2013. The point at issue was: did he have a reasonable excuse?
The appellant had submitted his 2009/10 return, which resulted in a balancing payment of £54,497.40 becoming due.
The return included a claim by the appellant to reduce his payments on account to nil, as there would be no tax or NIC becoming due for the following year.
A time to pay arrangement was verbally agreed with the appellant on 31 January 2011 to discharge the debt for 2009/10 over a period of 12 months; it was agreed that the appellant would discharge the 2009/10 debt at a rate of £2,000 per month.
On 21 January 2012 the appellant submitted his tax return for the year to 5 April 2011, resulting in payments on account of £9,655.10 due 31 January 2011 and £9,655.10 due on 31 July 2011.
Payment reminders were issued on 10 May 2012 and 16 October 2012 for the tax due for 2011, the outstanding tax for 2010 and accruing interest.
Mr Howes responded that he had a time to pay agreement in place; HMRC replied that there was no agreement in place for 2010/11, but there was for 2009/10.
The tribunal accepted that no agreement was in place for 2010/11 and stated that a mistake, even based on an honestly held belief, is not a ground of appeal.
The tribunal found that the appellant did not have a reasonable excuse.
For more information, visit the 'Related links' section on this page.
Barry Turner Ltd appealed against a default penalty surcharge of £1,917.50 imposed for late payment of VAT for the quarter ended 31 May 2013. This was the third default and the surcharge was therefore 5 per cent.
For that quarter, the return was filed on 5 July showing a VAT liability of £19,175.06. The VAT was due to be paid by direct debit on 10 July 2013, three bank working days after submission of the return.
The direct debit payment could not be taken as there were insufficient funds in the account and so the VAT was paid by cheque. The company’s agent phoned HMRC to explain the late payment and assumed that this would be treated as ‘on time’.
HMRC’s website states: ‘VAT default surcharges will not be charged if you contact HMRC before the payment is due and HMRC agree to a time to pay agreement which is adhered to.’ HMRC was not contacted until after the return was due, which was too late.
The tribunal decided that there was no reasonable excuse and upheld the surcharge.
For more information, visit the 'Related links' section on this page.
Northern Ireland Deaf Youth Association appealed against penalties of £3,200 levied for late filing of the employer’s annual returns for 2008/09, 2010/11 and 2011/12 and late payment of tax in the sum of £3,200.
The appeals were heard, despite being out of time.
The NI Deaf Youth Association is an unincorporated association which supports the young deaf community in Northern Ireland. Its current representatives admitted that during the relevant tax years the charity failed to account for PAYE and NIC and equally failed to make its annual returns.
The reason for this was that the charity had employed a development officer who was ill-suited to the job and failed to undertake even the most basic administration.
At that time, there was no governing board of trustees or office bearers who could hold the individual to account. When he left in 2012, the extent of his neglect was realised.
The association also pointed out that their deafness made it difficult to communicate with HMRC.
The tribunal did not find that reliance on the individual was a reasonable excuse and the appeal was dismissed.
For more information, visit the 'Related links' section on this page.
Sri Sai Ram Kalp’s PVT Ltd received a penalty of £100 for late submission of the employer’s annual return for the year 2012/13. The return was due on 19 May 2013 and was filed online on 9 October 2013.
The taxpayer was represented by Mr Rakesh Wadha of Tax Link accountants.
If the return is not filed by the due date, a penalty of £100 per month is levied on a firm with 50 or fewer employees. Where the combined total of tax and NIC is £100 or less, HMRC applies a concession and the penalty is limited to a minimum of £100.
Delegation to a third party does not amount to a ‘reasonable excuse’. The company had delegated the task of filing the return to their agents, Tax Link accountants.
In late April 2013 Tax Link installed new software in order to comply with the requirement for real-time information (RTI), which caused so me disruption to the record keeping.
The effect of this was that Tax Link was unable to file returns for some of its clients, although others were successfully filed.
Reliance on a third party is not a reasonable excuse, but the tribunal did look at the problems suffered by Tax Link and concluded that it had been able to submit some clients’ returns and that there had not been a reasonable excuse.
For more information, visit the 'Related links' section on this page.
Rockwell Management Ltd appealed against a penalty of £330 for failure to submit the end of year return P35 on time.
The fixed penalty for a company with 50 or fewer employees is £100 per month or part of a month that the return is late.
The return was due on 19 May 2011 but was finally submitted on 6 December 2011. The penalty was £400, but since the company’s PAYE for the year was only £330, it was reduced to that figure.
The company secretary appealed on the grounds that she was responsible for submitting the return but was on maternity leave at the time it should have been filed.
It was the first occasion that she had submitted a return late and it was entirely due to her absence on maternity leave and health complications associated with the birth.
There were further problems when the company’s hard drive was damaged in the move to a new address and, finally, the penalty was disproportionate for a company with a monthly PAYE bill of just £42.
The tribunal allowed the appeal and, unable to rule on the amount of the penalty, remitted it.
For more information, visit the 'Related links' section on this page.
JW Hall appealed against a penalty of £1,667 for late payment of capital gains tax for the year 2011/12.
The majority of the tax related to a gain on the sale of Dene Court Nursing Home in Exeter. The tax was paid in full on 13 March 2013.
Mr Hall had withheld the tax as his accountant was claiming entrepreneur’s relief on the sale.
The tribunal held that Mr Hall did not have a reasonable excuse and reliance on his accountant could not be a reasonable excuse.
For more information, visit the 'Related links' section on this page.
MJ Field SIPP (Brian and Joan Perry Account) appealed out of time against a penalty for late filing of the Employer’s Annual Return for 2009/10, which was delivered electronically five months late.
The appellant complained that no form P35 had been sent and they were unaware that they should complete it.
The appeal was dismissed, as reliance on a third party cannot be a reasonable excuse.
For more information, visit the 'Related links' section on this page.
Midlands Electrical Contractors Ltd appealed against a late-filing penalty of £100 in respect of the December 2011 monthly return under the Construction Industry Scheme, due to be filed by 19 January 2012 but received on 20 January 2012.
The company claimed that the return was posted on 12 January and should not have taken eight days to reach HMRC.
The review officer reminded the appellant that it had been advised by letter on 16 May 2011 that any future appeals against late-filing penalties would require proof of posting, which the company had not produced.
The appeal was dismissed and the penalty of £100 confirmed.
For more information, visit the 'Related links' section on this page.
Fiona Machin appealed against penalty notices dated in October and November 2010 in the sums of £400 and £200 respectively in respect of late filing of the employer’s annual return for the year 2009/10.
The return was filed online some five-and-a-half months late. The appellant had relied on her former agent and he had neglected to deal with it.
The appeal was dismissed and the penalty confirmed.
For more information, visit the 'Related links' section on this page.
London School of Economics appealed against a penalty of £10,200 for late submission of P35 and P14 forms for the year 2012/13.
The returns, due on 19 May, were received by HMRC on 26 June 2013. Returns were transmitted by Electronic Data Interface used only for transmissions to HMRC.
All returns were received by HMRC, except the two under appeal, which were sent on 1 May 2013.
Receipt of these two forms had not been acknowledged by HMRC and records at HMRC showed that they had not been received. No enquiry was made about the absence of an acknowledgement, but neither was there a rejection message from HMRC.
The tribunal concluded that the appellant’s failure to check why there had been neither a rejection nor an acknowledgement was not the act of a prudent taxpayer and rejected the appeal.
For more information, visit the 'Related links' section on this page.
LM Communications Ltd appealed against a default surcharge of £5,598.22 imposed in respect of the VAT period ended 30 September 2013 for its failure to submit VAT payment by the due date.
The surcharge was calculated at 15 per cent of the VAT due of £37,321.52.
The appellant did not dispute that the VAT was paid late but explained that, unfortunately during the week of the scheduled payment, he was required to be out of the country and could not be contacted by email.
He had also sent an email to the bank mentioning that monies were expected into the account but that Mrs Lara Mingay, a director of the company who also had access to the account, would ensure that there were adequate funds in the account to meet the payment.
In the event, Mrs Mingay inadvertently transferred monies out of the account, causing the direct debit to bounce.
The tribunal decided that the company had a poor compliance history and had been in the default regime for some time. It therefore could not rely on any delay caused by the inadvertent transfer of funds and dismissed the appeal.
For more information, visit the 'Related links' section on this page.
EJ Parkinson & Son Ltd appealed against a fixed penalty of £250 in respect of a failure to submit in time a monthly return for April 2013 under the Hydrocarbon Oil Regulations 2002.
The company usually submitted the monthly returns by post. The normal procedure was that a blank return would be sent to the company two weeks before the due date and it would be completed and sent by 21st of the month.
Written evidence of posting was never obtained. No return was received or sent for February and HMRC sent a warning letter.
The return for March was received and the return for February was submitted in the same envelope as the return for April, which was sent shortly before the end of April.
HMRC never received the envelope and the company sent duplicates, which were received in July 2013.
HMRC asserted that the company should have retained proof of posting but the tribunal said that it was reasonable to expect that the return would have been received and allowed the appeal.
For more information, visit the 'Related links' section on this page.
JAG Interiors Ltd appealed against late filing penalties in the sum of £3,600 imposed for late submission of P35 returns for 2009-10, 2010-11 and 2011-12. Due by 19 May each year, they were not received until 24 June 2013. Was there a reasonable excuse?
The origin lies in the operation of a time to pay agreement concerning the deferred payment of £7,234.80; this amount is not under appeal. The agreement provided that the first payment of £716.25 should be paid on 15 November 2009, followed by £500 on 15 December 2009 and the same monthly payment until 15 May 2010. It was a condition of the agreement that the taxpayer should keep its tax affairs up to date and submit any tax returns on time.
All went according to plan until the payment due in February 2010 was sent and £400 was re-allocated by HMRC to another liability, leaving only £100 for the monthly time to pay agreement. HMRC took the view that the agreement had been breached and in October 2010 ended it. The Appellant considered that this was a ‘misappropriation’ and ceased to submit P35 returns until HMRC had dealt with the dispute.
This matter was not within the jurisdiction of the Tribunal, whose duty was only to consider whether there was a reasonable excuse. They concluded that there was not and dismissed the appeal.
For more information, visit the 'Related links' section on this page.
Peter J Howes appealed against penalties of £2,895 for failure to pay his self-assessment tax for the year ended 5 April 2011 on time. The tax return was paid on time and this produced a tax liability of £19,310.20 which was due for payment by 31 January 2012 but was not paid until 31 December 2013. The point at issue was: did he have a reasonable excuse?
The Appellant had submitted his 2009-10 return, which resulted in a balancing payment of £54,497.40 becoming due. The return included a claim by the Appellant to reduce his payments on account to nil, as there would be no tax or NIC becoming due for the following year. A time to pay arrangement was verbally agreed with the Appellant on 31 January 2011 to discharge the debt for 2009-10 over a period of twelve months. It was agreed that the Appellant would discharge the 2009-10 debt at a rate of £2,000 per month.
On 21 January 2012 the Appellant submitted his tax return for the year to 5 April 2011, resulting in payments on account of £9,655.10 due 31 January 2011 and £9,655.10 due on 31 July 2011.
Payment reminders were issued on 10 May 2012 and 16 October 2012 for the tax due for 2011, the outstanding tax for 2010 and accruing interest. Mr Howes responded that he had a time to pay agreement in place. HMRC wrote to say that there was no agreement in place for 2010-11, but there was for 2009-10.
The Tribunal accepted that no agreement was in place for 2010-11 and stated that a mistake, even based on an honestly held belief, is not a ground of appeal. They found that the Appellant did not have a reasonable excuse.
For more information, visit the 'Related links' section on this page.
Barry Turner Ltd appealed against a default penalty surcharge of £1,917.50 imposed for late payment of VAT for the quarter ended 31 May 2013. This was the third default and the surcharge was therefore 5%. For that quarter, the return was filed on 5 July showing a VAT liability of £19,175.06. The VAT was due to be paid by direct debit on 10 July 2013, three bank working days after submission of the return. The direct debit payment could not be taken as there were insufficient funds in the account and so the VAT was paid by cheque. The company’s agent phoned HMRC to explain the late payment and assumed that this would be treated as ‘on time’.
Unfortunately HMRC’s website states: ‘VAT default surcharges will not be charged if you contact HMRC before the payment is due and HMRC agree to a time to pay agreement which is adhered to’. HMRC was not contacted until after the return was due, which was too late.
The Tribunal decided that there was no reasonable excuse and upheld the surcharge.
For more information, visit the 'Related links' section on this page.
Northern Ireland Deaf Youth Association appealed against penalties of £3,200 levied for late filing of the employer’s annual returns for 2008/09, 2010/11 and 2011/12 and late payment of tax in the sum of £3,200. The appeals were heard, despite being out of time.
The NI Deaf Youth Association is an unincorporated association which supports the young deaf community in Northern Ireland. Its current representatives admitted that during the relevant tax years the charity failed to account for PAYE and NIC and equally failed to make its annual returns.
The reason for this was that the charity had employed a development officer, who was ill-suited to the job and failed to undertake even the most basic administration.
Apparently at that time, there was no governing board of trustees or office bearers who could hold the individual to account. When he left in 2012, the extent of his neglect was realised. They also pointed out that their deafness made it difficult to communicate with HMRC.
The tribunal did not find that reliance on the individual was a reasonable excuse and the appeal was dismissed.
For more information, visit the 'Related links' section on this page.
Sri Sai Ram Kalp’s PVT Ltd received a penalty of £100 for late submission of the employer’s annual return for the year 2012-13. The return was due on 19 May 2013 and was filed online on 9 October 2013. The taxpayer was represented by Mr Rakesh Wadha of Tax Link Accountants.
If the return is not filed by the due date, a penalty of £100 per month is levied on a firm with 50 or fewer employees. Where the combined total of tax and NIC is £100 or less HMRC apply a concession and the penalty is limited to a minimum of £100.
Delegation to a third party does not amount to a ‘reasonable excuse’. The company had delegated the task of filing the return to their agents, Tax Link accountants. In late April 2013 Tax Link installed new software in order to comply with the requirement for real time information (RTI), which caused some disruption to the record keeping. The effect of this was that Tax Link was unable to file returns for some of their clients, although others were successfully filed.
Reliance on a third party is not a reasonable excuse, but the Tribunal did look at the problems suffered by Tax Link and concluded that they had been able to submit some of their clients’ returns and that there had not been a reasonable excuse.
For more information, visit the 'Related links' section on this page.
Rockwell Management Ltd appealed against a penalty of £330 for failure to submit the end of year return P35 on time. The fixed penalty for a company with 50 or fewer employees is £100 per month or part of a month that the return is late. The return was due on 19 May 2011 but was finally submitted on 6 December 2011. The penalty was £400, but since the company’s PAYE for the year was only £330, it was reduced to that figure.
The company secretary appealed on the grounds that she was responsible for submitting the return, but was on maternity leave at the time it should have been filed. It was the first occasion that she had submitted a return late and it was entirely due to her absence on maternity leave and health complications associated with the birth. There were further problems when the company’s hard drive was damaged in the move to a new address and finally, the penalty was disproportionate for a company with a monthly PAYE bill of just £42.
The Tribunal allowed the appeal and, unable to rule on the amount of the penalty, remitted it.
For more information, visit the 'Related links' section on this page.
JW Hall appealed against a penalty of £1,667 for late payment of capital gains tax for the year 2011-12. The majority of the tax related to a gain on the sale of Dene Court Nursing Home in Exeter. The tax was paid in full on 13 March 2013. Mr Hall had withheld the tax as his accountant was claiming entrepreneur’s relief on the sale.
The Tribunal held that Mr Hall did not have a reasonable excuse and reliance on his accountant could not be a reasonable excuse.
For more information, visit the 'Related links' section on this page.
MJ Field SIPP (Brian and Joan Perry Account) appealed out of time against a penalty for late filing of the Employer’s Annual Return for 2009-10, which was delivered electronically five months late. The Appellant complained that no form P35 had been sent and they were unaware that they should complete it. The appeal was dismissed, as reliance upon a third party cannot be a reasonable excuse.
Midlands Electrical Contractors Limited appealed against a late filing penalty of £100 in respect of the December 2011 monthly return under the Construction Industry Scheme due to be filed by 19 January 2012 but received on 20 January 2012. The company claimed that the return was posted on 12 January and should not have taken 8 days to reach HMRC. The Review Officer reminded the Appellant that it had been advised by letter on 16 May 2011 that any future appeals against late filing penalties would require proof of posting, which the company had not produced. The appeal was dismissed and the penalty of £100 confirmed.
For more information, visit the 'Related links' section on this page.
Fiona Machin appealed against penalty notices dated in October and November 2010 in the sums of £400 and £200 respectively in respect of late filing of the employer’s annual return for the year 2009-10. The return was filed online some five and a half months late. The Appellant had relied upon her former agent and he had neglected to deal with it. The appeal was dismissed and the penalty confirmed.
For more information, visit the 'Related links' section on this page.
London School of Economics appealed against a penalty of £10,200 for late submission of P35 and P14 forms for the year 2012-13. The returns, due 19 May were received by HMRC on 26 June 2013. Returns were transmitted by Electronic Data Interface used only for transmissions to HMRC. All returns were received by HMRC, except the two under appeal, which were sent on 1 May 2013.
Receipt of these two forms had not been acknowledged by HMRC and records at HMRC showed that they had not been received. No enquiry was made was made about the absence of an acknowledgement, but neither was there a rejection message from HMRC.
The Tribunal concluded that the Appellant’s failure to check why there had been neither a rejection nor an acknowledgement was not the act of a prudent taxpayer and rejected the appeal.
For more information, visit the 'Related links' section on this page.
LM Communications Ltd appealed against a default surcharge of £5,598.22 imposed in respect of the VAT period ended 30 September 2013 for its failure to submit VAT payment by the due date. The surcharge was calculated at 15 per cent of the VAT due of £37,321.52.
The appellant did not dispute that the VAT was paid late but explained that, unfortunately during the week of the scheduled payment, he was required to be out of the country and could not be contacted by email. He had also sent an email to the bank mentioning that monies were expected into the account but that Mrs Lara Mingay, a director of the company who also had access to the account would ensure that there were adequate funds in the account to meet the payment. In the event, Mrs Mingay inadvertently transferred monies out of the account, causing the direct debit to bounce.
The Tribunal decided that the company had a poor compliance history and had been in the default regime for some time. They could therefore not rely on any delay caused by the inadvertent transfer of funds and dismissed the appeal. Read the LM Communications Ltd case report.
EJ Parkinson & Son Ltd appealed against a fixed penalty of £250 in respect of a failure to submit in time a monthly return for April 2013 under the Hydrocarbon Oil Regulations 2002.
The company usually submitted the monthly returns by post. The normal procedure was that a blank return would be sent to the company two weeks before the due date and it would be completed and sent by 21st of the month.
Written evidence of posting was never obtained. No return was received or sent for February and HMRC sent a warning letter.
The return for March was received and the return for February was submitted in the same envelope as the return for April, which was sent shortly before the end of April. HMRC never received the envelope and the company sent duplicates, which were received in July 2013.
HMRC asserted that the company should have retained proof of posting but the tribunal said that it was reasonable to expect that the return would have been received and allowed the appeal.
For more information, visit the 'Related links' section on this page.
Prested Hall Ltd and Prested Health and Leisure Ltd appealed out of time. They had attempted to appeal on time by email but an electronic glitch meant that when received by the tribunal, the appeal was unreadable and therefore rejected. The appeals were admitted out of time.
Prested Hall had a history of late payments. HMRC did not receive the VAT payment for April 2012 by the due date; it accepted that Prested Hall had a reasonable excuse because it had accidentally been sent on time to HMRC PAYE bank account.
Prested Hall appealed the imposition of the default surcharges for April 2011, July 2011 and July 2012.
Prested Health and Leisure Ltd had paid its VAT late three times. This resulted in a 5 per cent surcharge at £738.38 for paying February 2011 late.
A surcharge was also imposed for May 2011, but HMRC accepted that the company had a reasonable excuse.
The companies employed a book-keeper, Ms Barber, who was responsible for keeping the VAT books and notifying the director of the amount of VAT each return period.
Her circumstances were very sad. Her husband was diagnosed with a brain tumour in 2010; for a long period he was in hospitals and hospices and was eventually sent home to die.
Ms Barber was unable to work regular hours, either visiting her husband in hospital/hospice or looking after him at home, all the while having two children to look after.
At the same time, his prognosis varied considerably, with Ms Barber being told on a number of occasions that he only had a few days to live. In the event, he survived until early 2013.
Ms Barber had made errors; she sometimes notified the director of the VAT liability too late and had not read the warning that HMRC was not in the faster payments regime.
The director had tried to bring in an assistant to help on two occasions. The first was not suitable for the role, the second was employed for three months but Ms Barber would not hand over her VAT responsibilities.
The director was reluctant to insist because he did not want to make her life more stressed than it already was. He was also worried that adverse publicity might ensue.
The tribunal was unable to accept that the companies had a reasonable excuse for the period to April 2010, as no reason was put forward for it.
However, it did find that Ms Barber’s personal difficulties amounted to a reasonable excuse for the period to February 2011.
For more information, visit the 'Related links' section on this page.
A&B Fencing Ltd appealed against a penalty for late submission of the employers returns P35 and P14 for 2007-08.
The appellants had attempted to file them on 19 May 2008, but this was unsuccessful as the Government Gateway had crashed.
The next day, they sought advice from HMRC and were told to submit paper copies, which they did.
They were unaware that HMRC had not received the forms until a penalty notice was issued. They then requested another P35 and HMRC sent them the wrong form.
The tribunal allowed the appeal and set the penalties aside.
For more information, visit the 'Related links' section on this page.
Andrew Banks appealed against a penalty under Schedule 24 Finance Act 2007 for prompted careless inaccuracy in his tax return for the year ended 5 April 2011.
The appellant was set up with a self-assessment return for the year to 5 April 2011 as HMRC wished to establish his higher rate liability and whether his personal allowance would be restricted due to his income exceeding £100,000.
He submitted his return on 21 January 2012. HMRC claimed that he submitted no income on his tax return and this was incorrect as he had income and benefits from Calibre One Ltd and Blackwood Recruitment LLP; the appellant’s self-assessment return showed tax due of £0.
HMRC opened an enquiry into the return and concluded that it should show income from both sources. The increase in tax due was £3,421 caused by the reduction of the personal allowance to nil. Banks paid the sum of £3,336.12 to include interest.
The appellant disagreed that a penalty was due, claiming that the income and tax deducted was entered on his tax return and that a system error failed to capture the amount.
He claimed that he made contemporaneous notes of a conversation with HMRC when he was told that system errors do happen.
HMRC’s note differs and states that Banks had not entered the sums because tax was deducted under PAYE and was therefore careless.
The appellant submitted that in penalty cases the burden of proof is on HMRC and no proof of carelessness had been submitted.
The tribunal held that the burden of proof was on HMRC and the standard of proof is on a balance of probabilities.
It was unlikely that the appellant would have completed a return with no earned income details and equally unlikely to envisage HMRC’s systems failing in such a rudimentary way.
The appeal was allowed and the penalty discharged.
For more information, visit the 'Related links' section on this page.
Hogg Joinery Ltd appealed against a decision by HMRC to impose penalties of £400 for late submission of the Employer’s Annual Return for the year ended 5 April 2013.
The return was due to be filed by 19 May 2013 but was eventually filed online on 17 September 2013.
The appellants claim that the 2012/13 return was filed on time. They have two other businesses and their book-keeper filed the returns for all three entities at the same time and in the same way, so they did not understand how two returns were received and the third was not.
It was not until the third attempt that the return went through successfully; the problems began when the business changed from a partnership to a limited company.
The appellants question why they were not notified that the returns were not received until years after the date of the earlier one. They had spoken to many HMRC staff, all of whom agreed that the error had arisen at HMRC and that they should have been notified sooner.
The tribunal accepted that the appellants tried to file their return on time and that something went wrong. It also accepted that they took all reasonable steps to rectify the situation.
The tribunal found that on the balance of probabilities the appellants had a reasonable excuse for non-payment of the penalties and allowed the appeal.
For more information, visit the 'Related links' section on this page.