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Experience of PAYE late payment penalties?

Experience of PAYE late payment penalties?

Hello,

Would appreciate any thoughts on this matter.

A company has for many years paid monthly PAYE by BACS on the same day every month that they pay the net pay for the following month. Payment goes through between 23rd & 25th rather than by 22nd.

They never realised apparently that this was late.

They had a PAYE inspection in March 2009 which went fine & the Inspector did not make any comment to indicate they were paying late & nor did he mention that shortly late payment would lead to penalties.

Last month they received a penalty notice from HMRC for 4% of the annual PAYE bill of £500K so of almost £20K.

If you calculate what late payment interest would be on around 3 days per month at, say, 5% then it would not be much over about £200.

The company appealed saying they were unaware of the new rules but HMRC has rejected the appeal saying they were sent a letter after the first month was late & they should have kept up to date via Employer Bulletins & by reading HMRC website. The company say they do not recall receiving the letter but even if  they did it seems to me ludicrous to send one letter in May 2010 & then to make no further contact until out of the blue issuing a £20K penalty eighteen months later!

They are not a client of mine but I act for one of the directors & they have asked me to submit a follow up appeal to request an HMRC internal review.

I find just writing the above makes my blood boil at the sheer iniquity of it all! I can't believe that at the end of the day we won't be able to make HMRC agree there is "reasonable excuse" hopefully with just one letter but otherwise at a tribunal but I wonder if others are experiencing these penalties and if so what responses are being received to appeals?

Thank you for any comments or advice.

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11th Oct 2011 13:18

Experience of PAYE late payment penalties?

We have a client has also paid late each month by a few days and has also received a late payament penalty in excees of £5000.

We have appealed but so far we have been unsuccessful as their arguments is it is in the legislation so there.

This is theft pure and simple as far as I am concerned. We are not giving up on fighting this.

One of my colleague has suggested that we should appeal to say that only one payment was late and not paid until after the end of the tax year. All the others were paid in advance . Not sure this would work but what the hell, we have to try something for the client sake...

The courts have slapped HMRC on the wrist in respect of late filing penalties for P35 as being excessive. I think we could have a case here... But our government is so short of funds, bless them... Grrrrr.

I can appreciate that the penalty should apply on amounts still unpaid at 19/22  (if paid by Bacs) April after end of tax year to which payments relates but to charge 4% interest on something which is only 2 or 3 days late.

They should calculate the interest due if taxpayer is late more than once based on the number of days each payment was actually late.

Like penalties on keeping incorrect records this a qucik and easy way to fill up the Treasury's coffer.. This is extorsion on a grand scale...

 

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12th Oct 2011 19:14

Rebecca Bennyworth has been lecturing on this

At her recent lecture in Crawley, our itinerant tax edtior recounted the very similar tale of a company that was a couple of days late with PAYE payments throughout a full year and ended up with penalties amounting to £80k, based on 5% of the tax due (levied in separate sequential penalties).

Their adviser is appealing on grounds of disproportionality - whether it's £20k or £80k, that is a disproprotionate for paying tax a bit late each month.

Rebecca's view is that the PAYE penalty regime would work if late payments triggered an automatic notice alerting the miscreant to their lapse within a few days. But HMRC does not have the technology in place and is instead applying the existing regime on a "risk assessed" basis, which often means that they wait a year and then wallop companies with hefty penalties. Some commentators, including tribunal judge Geraint Jones who has upheld several taxpayer appeals, have suggested that HMRC is using penalties as a money-making exercise rather than to change taxpayer behaviour.

"It will work when RTI comes in," Rebecca said. "Then HMRC will know exactly how much every employer will need to pay and they will write IT to automate fines." Is supect that’s when we’ll see it. You need to get clients to pay attention to late payment of PAYE. Even if they're one day late, it will hurt."

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13th Oct 2011 08:26

Thank you both.

I quite agree this system is little short of theft. Also that if HMRC wrote a warning after each late payment that would be fair but ONE LETTER in May 2010 & nothing more until a penalty 18 months later, well words fail me.

We've sent in our request for an internal review & will let you know the outcome.

 

 

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17th Oct 2011 11:33

Similar issue with CIS

We have a client who is a habitual slightly late payer and was at risk of losing his gross status. We appealed and successfully retained the gross status.

Thinking it was all over we were then a bit surprised to receive a few weeks back a penalty demand for the late payments amounting to £4k+.

Appeal submitted using the same grounds and also pointing out that an appeal has already been accepted for the circumstances of the case.

Reply awaited...

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By bduncan
17th Oct 2011 12:12

Claim that it is only the first payment is late and not paid.

I have a couple of clients who pay their PAYE early with the wages about the 25th every month. HMRC sometimes allocate this to the previous month as it is prior to the 5th.

So if your client never paid month 1 but paid month 2 early with the net pay of month 2 and 3 with 3 etc then there is only month 1 which is late albiet 12 months late.

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17th Oct 2011 12:52

worried by this

I agree the new system is bad, but by claiming only the first payment is very late and all of the others are early is surely digging a big hole for yourself.  If they looked at the actual payments due each month and then compared these to the amounts paid they would see that each month was paid a couple of days late.  If you had tried to claim different, you could surely make the whole matter even worse?

 

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17th Oct 2011 14:12

One possible angle

You could argue that if they had sent the penalty notice after the May payment was late, you would have immediately changed the BACS date, and none of the subsequent payments would have been late.  People have had success with this sort of argument at the tribunal against monthly penalties for late P35s where HMRC waits until about September before telling people they didn't get the return.

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17th Oct 2011 16:47

Disproportionate argument

We managed to get a penalty waived on the disproportionality argument. You could also make a formal complaint against the PAYE officer on the grounds that he/she failed to fulfill his/her duty and include that in your request for a review.

Malcolm McFarlin

www.mandrtaxadvisers.com

 

 

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18th Oct 2011 10:57

Appeal and next step the commissioners?
I just appealed on the ground that the APR amounts to over 200%, which is loan shark territory. Also I see Goldman Sachs have been let off the hook and let off paying interest on a tax avoidance move. Here we are, humble SMEs trying to manage cash in challenging circumstances. Let's engage and appeal and bring some justice to SMEs since 3% penalty, for eg on 3 days late payment of PAYE is outrageous. Hmrc is not bring true and fair.

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By uroman
20th Oct 2011 20:58

Internal review

Our company has had the same problem and been hit with a £8k fine. We have already had the case reviewed but with no success. We argued that if we had been made aware during the year of the extent of the potential penalty then we would have paid earlier. Also argued that the penalty was out of proportion as payments were only a few days late.

They stated that they had widely publicised the new regime and we should have checked the HMRC website to see what the penalties were.

We intend now to go tribunial and hopefully someone will see sense here.

 

 

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John MacDonald
21st Oct 2011 08:18

"We should have checked the

"We should have checked the HMRC website to see what the penalties were."

We had this comment put to my client too. They also told my client though, when asked why it had taken until half way through this year to raise the 2010/11 penalty, that they were doing so "as quickly as our staff resources allow". So in other words they with thousands of employees can take as long as they like to do things whereas SMEs with one director running payroll as well as all his other duties are expected to keep up to date by trawling through the HMRC website in case any regulations affecting the company have changed.

You couldn't make it up really.

Thank you also to others for comments above. The Goldman Sachs settlement does make it look as if there's one rule for the big boys & one for small businesses.

Anyway, we await reply following our request for internal review so we'll see what happens.

  

 

 

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21st Oct 2011 08:18

Internal review - the way to go
It seems tribunal is the way to go. And hopefully fair play will prevail. If banks bailed out by uk goby charged 200% on past due mortgage payments there would be a lynching. So why should Hmrc get away with it?!

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24th Oct 2011 14:57

Tribunal hearing today

Just got back to office after Tribunal hearing (1st tier) to appeal penalties where payments late by one day every month due to client using faster payments.  Decision in a couple of weeks - watch this space!

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By dhalsey
27th Oct 2011 16:45

What about where an eventual repayment is expected

Here's an interesting angle - one client didn't pay over £3000 or so of PAYE in the first half of the year because she knew she was pregnant and so the SMP alone would total £4500 in the second half of the year, so why pay PAYE only to have to fight HMRC to get it refunded later?

Given the experiences we've had recently of HMRC refusing to repay overpaid PAYE to employers after the submission of the P35 (ever inventing new fabulous ruses to hold up the repayment each time such as "prove the director is a director" etc), would a taxpayer be liable to late payment of paye penalties where they knew the balance would be offset before 5th April?

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02nd Nov 2011 11:00

Tribunal Hearing

Interested to hear that p.seligman has already attended Tribunal with case on this issue - keen to see the decision and what arguments were run.

We notified appeal on similar issue to Tribunal a week or so ago on one and are now waiting on this.

Surprised to hear that Malcolm McFarlin managed to get one overturned on review - I got the impression that there was a pretty standard policy response to the proportionality argument.

I heard a word that HMRC wanted to appeal the Hok case (issue of common law fairness) - it would be good have a binding decision at the Upper Tier on this issue - so we do not have to argue on an individual case basis. 

 

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08th Nov 2011 11:16

Victory -  appeal successful

Victory -  appeal successful (albeit HMRC have 28 days to appeal)

Tribunal have accepted reasonable excuse

Snowed under at the moment but will give more details soon

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chatman
08th Nov 2011 11:31

Appeal successful

Congratulations, interested in details in due course.

J

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chatman
08th Nov 2011 11:40

Victory -appeal successful

Excellent news!

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By Handa
10th Nov 2011 13:44

PAYE Penalties

Very pleased to learn that p.seligman has been successful at 1st Tier Tribunal. We are at present preparing appeals for 2 clients who have been charged some £5,000 and £2,300 respectively. May I request you to post the arguments you have put forward. Our clients paid PAYE each month by cheques before 19th each month which HMRC claim to have recieved some 5-12 days after 19th day of each month.

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11th Nov 2011 13:17

Appeal

The case was heard on 24 October and the summarised decision was released on 7 November.  As HMRC have 28 days to appeal I was going to wait until that period had expired before giving details so as not to risk them appealing the decision.  The penalty was £5,000 which the client had already paid.  I have another case (very similar circumstances) with a £8,000 penalty.  That case went on appeal for an internal review mid October using the same argument, but I have not yet had a response. 

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23rd Nov 2011 13:34

Penalty cancelled

Just had letter from HMRC cancelling the penalty.  So thankfully no appeal.

My client had paid by faster payments not realising payments to HMRC took 3 days so every payment was just 1 day late. At the tribunal I said that the payments were made in good faith as being on time and that my client genuinely, but mistakenly, believed the payments were
made on time and that was why we were claiming reasonable excuse.  I referred to Anthony Leachman t/a Whiteley and Leachman (TC01125) where the tribunal judge held a genuine mistake was reasonable excuse.

I also argued that it was unreasonable for HMRC not to notify our client that penalties were being charged until June 2011 for payments going back to June 2010, thus not allowing the position to be rectified sooner and avoid further and increasing penalties.  I said that in the age of computers it would be straight forward for HMRC to send such a notice. In HMD International (TC01322) the tribunal judge stated that there was no logical reason why HMRC would delay sending out a penalty notice.  It was also stated that as an arm of the state HMRC has a common law duty of fairness.  Although I understand HMRC may be appealing this defence in the Hok case (per Taxation magazine).

I also quoted from the tribunal decision in the case of N A Dudley Electrical Contractors (TC01124) on fairness.

All the above cases were decided by Judge Geraint Jones! So was Hok!

The Tribunal Judge seemed to take particular note when I said HMRC should have made contact with our client immediately they considered a penalty was exigible and again at each stage when the penalty increased from 1% to 4%.

I also stated proportionality as my client was only a day late and compliant.  He is not a habitual late payer.

Good luck to all those who are appealing such penalties
 

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By Handa
ollie
23rd Nov 2011 14:17

PAYE Penalties

Could we request Mr Seligman to provide us with Tribunal case reference number so that we can read the judgement.

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Kent accountant
23rd Nov 2011 15:29

Handa

The decision is dated 7 November and not on public record yet - I expect it to be released next week.  The case number is TC/2011/06328

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25th Nov 2011 11:42

Congratulations to p.seligman!

It's great to hear the news from a community member here, and I plan to follow up with a news report on your case.

I'll be in touch by private message, but wanted other members to know what we'll be doing.

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28th Nov 2011 11:40

Dina Foods

Mr Stokdyk, you may wish to may make reference to Dina Foods Ltd (TC05146) in your article. Dina lost, thus making the latest score one-all.

I think in Dina the judge got the law wrong: In para 11 of the decision he says “the first time penalties could be raised under these rules was after the end of the 2010/11 tax year”. This misunderstands the purpose of the penalties (to encourage compliance), the duties of HMRC in the taxpayers’ charter (to help and support taxpayers to get things right, to act with integrity etc) and para 11(5) of sch 56 FA 2009.

In the case of an employer who was late with every payment by only a few days, a penalty became exigible on 20/6/11 (ignoring the period of grace for electronic payers) and a day or two later, when the remittance was received, HMRC would have had all the information they needed to raise a penalty notice. To wait 14 months before doing so, and thus depriving the employer of the opportunity of mending his ways sooner, seems most unfair, especially as it means more and larger percentage penalties. Also such employers can expect a further penalty notice for the first few months of 2011/12 even if they mended their way on receipt of the 2010/11 notice, thus emphasising the unfairness of the delay.

I think that the word “must” in para 11(1) coupled with the common law duty of fairness and HMRC’s charter promises impose on HMRC a duty to issue penalty notices with alacrity and not in the tardy manner they have.

Duncan Cameron

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28th Nov 2011 12:36

Internal Review

Another victory!

Client's £8,000 penalty reduced to £192.25 (they were actually late in Months 1 and 5) following an appeal that went for an Internal Review.  I  used the same arguments and references as in my Tribunal win.

I will liaise with John Stokdyk for his news report.

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28th Nov 2011 14:57

Success!

Pleased to say the penalties of nearly £20K I referred to in my opening to this query have been cancelled after internal review.

I am most grateful for the many helpful comments posted in response to my query.

 

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05th Dec 2011 12:16

Late PAYE penalties

We have also won an appeal at the First Tier Tribunal.  This was on the grounds of reasonable excuse that underlying financial difficulties were beyond the employer's control thus affecting some late payments.  It should be published soon as the hearing was on 9 November.

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05th Dec 2011 13:31

Late Payment PAYE penalties

We are a small company and have a similar situation where PAYE payments were made just before the following month's payroll was processed, so each payment was around 6 days late.  HMRC rang during the year to ask where the payments were on four occasions but never once mentioned the new late payment penalty regime.  When they rang in Sep 10, Jan & Feb 11, they must have known that penalties were reaching the 2, 3 or 4% mark but never said a word, then issued a £4500k penalty in June 2011.  

We also do not recall receiving the supposed letter sent out in June 2010 but having seen the letter received by others, there is no mention of the new regime with its tabled percentage penalties, only a bland statement saying that penalties may be charged for late payment; this has always been the case but has only previously been imposed if tax was still outstanding after the end of the year.  Why not highlight the new regime in that letter or at any time during the 2010/11 year?

We are now awaiting a tribunal date.  We are appealing on the disproportionate amount of the penalty incurred compared to the 'crime', the failure of HMRC to take into account the fact that they 'lost' one of our PAYE payments in 2006 - took 4 years to 'find' the payment whilst sending a stream of letters threatening to seize assets, chattels etc. for the whole 4 years - sheer incompetence on their part but they expect us to be perfect and spend every day trawling through their website in case they have come up with a new scheme to extract money!

Unbelievable.

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DJKL
06th Dec 2011 12:33

Your case is different to my clients'.  Both my clients made the payments before the due date in the mistaken belief that they were on time - this was our reasonable excuse argument.  As such due the the 3 banking days each payment was 1/2 days late but 6 may be pushing it.  May well be worth running the fairness argument but be aware Taxation magazine stated this was being appealed in the Hok case.

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DJKL
29th Nov 2012 12:56

.
 

.

 

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DJKL
29th Nov 2012 12:56

Late Payment PAYE penalties

bookkeeper wrote:

We are a small company and have a similar situation where PAYE payments were made just before the following month's payroll was processed, so each payment was around 6 days late.  HMRC rang during the year to ask where the payments were on four occasions but never once mentioned the new late payment penalty regime.  When they rang in Sep 10, Jan & Feb 11, they must have known that penalties were reaching the 2, 3 or 4% mark but never said a word, then issued a £4500k penalty in June 2011.  

We also do not recall receiving the supposed letter sent out in June 2010 but having seen the letter received by others, there is no mention of the new regime with its tabled percentage penalties, only a bland statement saying that penalties may be charged for late payment; this has always been the case but has only previously been imposed if tax was still outstanding after the end of the year.  Why not highlight the new regime in that letter or at any time during the 2010/11 year?

We are now awaiting a tribunal date.  We are appealing on the disproportionate amount of the penalty incurred compared to the 'crime', the failure of HMRC to take into account the fact that they 'lost' one of our PAYE payments in 2006 - took 4 years to 'find' the payment whilst sending a stream of letters threatening to seize assets, chattels etc. for the whole 4 years - sheer incompetence on their part but they expect us to be perfect and spend every day trawling through their website in case they have come up with a new scheme to extract money!

Unbelievable.

 

Please can you let me know the outcome of your appeal.

I would be very interested to hear.

Many Thanks

 

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07th Dec 2011 09:12

Walton Kiddiwinks appeal

Just read an interesting case Walton Kiddiwinks Private Day Nursery v HMRC UKFTT 479. A nursery had failed to file its end of year P35 return. The appellant honestly thought he had filed it online.

HMRC deliberately chose to wait 4 months before issuing a penalty of £400.00 per month. A further £100 penalty was due as the notice was received too late to avoid it.

The FTT in their judgement referred to the decision in Jussila v Finland that the burden of proof for a penalty rests with HMRC.

The FTT concluded that even if HMRC had proved the default, the genuine belief by the taxpayer that he had filed his return would have constituted a 'reasonable excuse'; the taxpayer did not have to show 'exceptional circumstances'

Malcolm McFarlin

www.mandrtaxadvisers.com

 

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lionofludesch
07th Dec 2011 13:32

Test or no test - that is the question

I've just had an appeal for late submission of P35 rejected by Longbenton.  Client thought she had filed P35 in April and got the standard email to say submission successful but if a test submission then file for again.  She ignored the last bit as she thought it was not a test and got a £400 penalty in September for non submission.  We appealed but got no response.  Then when she filed again in October (on my advice) she got an identical email and a £100 fine.

Revenue rejected reasonable excuse even though I had referred to the Writtle College Services case which was identical to my client other than it related to 2009/10 tax year. 

I will now be applying for an Internal Review and if not successful my client has agreed to go to Tribunal. 

It is clear that Longbenton do not understand their own email responses and another example of HMRC inefficiencies.  If a test is submitted the confirmation email should specifically state so which it clearly does not!

www.seligmanpercy.co.uk

 

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By dhalsey
08th Dec 2011 12:05

Time limit of Appeal?

Interesting reading these comments.

I have a client where all of this applies and HMRC admitted they have no records prior to 2009 to prove that they reminded the client before hitting him with a £4k CIS penalty.

Only issue is, they said in their letter that he hadn't appealed within 30 days so couldn't take the case to the First Tier Tribunal.

Is this correct? Or can a taxpayer fight penalties even if they didn't inititally appeal within 30 days?

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Democratus
08th Dec 2011 12:39

You can apply to the Tribunal directly to request a late appeal. I have successfully done this in the past when we missed deadline for internal review (albeit we had reasonable grounds for the late appeal), but I think the original appeal must be within the 30 day time period.

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DJKL
09th Dec 2011 12:39

Late appeals

You can apply to the Tribunal to accept a late appeal even if original appeal to HMRC is late.  Tribunal will apply a different approach to HMRC, but there is chance of success if delays not extreme and there is some reason.

Having said that provided you give some sensible reasons for the delay, recently we have not had a major problem with HMRC accepting late appeals.

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24th Aug 2012 21:34

Tribunal
Hi there, I went to a tribunal in the last few days. Don't want to say to much as I don't want to jeopardise the case. Basically I failed to make 10 payments within tax year 2010/2011. I am not disputing I paid on time but on the basis that if I know that there was a penalty system then I would of paid. I provided evidence that I had funds to pay on the 19th of each month. The judge was brilliant and the judges tax advisor was brilliant aswell. My case has been adjourned for 12 weeks and in this time the direction has been given for HMRC to talk to me directly. Please contact me directly and I will talk more about my particular case as there are references that I may be able to help you with. I think the tribunal service is fed up with the amount of people coming through them with the same problem.

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