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Penalties for no payroll

A sports club I have a family connection with has had a visit from HMRC. I hear a number in the area have had the same.

Sometimes students are paid to do the bar and there is a cleaner but no payroll was operated. The sad thing is that most of the people could probably have completed a P46 such that no tax would have been due.

An assessment has been raised for 6 years of PAYE plus interest with a comment in the letter about penalties due under Section 98A (2) (a) TMA 1970 for failure to submit a return.

I had a telephone conversation with HMRC relating to the assessment level and in passing asked what level they expected the penalty to be. I was told it is a statutory penalty of £100 per month. I assumed that is £100 per month for 6 years, ie £7200! As the assessment may end up at about £5000 the penalty seems rather high. Is my assumption correct? Has anyone got any tips on challenging the penalty?

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Penalties sound right!!

Not the news you were hoping for but I have experienced a similar problem in the past with a client who didn't do any payroll returns for a period of time.

Just to add to the potential misery HMRC can also levy a penalty for none delivery of a P35 as well. So there could be an additional £600 for that too.

It may be worthwhile the club/officers checking if they are at risk regarding other taxes as well ie VAT/CT if they are trading and don't fall under the mutual trading rules.

And finally can the club afford to pay the penalties etc if they are levied in full? If not then dependant upon the structure of the club there could be personal liability issues for the members as well as the management committee.

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P46 procedure

"The sad thing is that most of the people could probably have completed a P46 such that no tax would have been due.""" 

I have seen cases where HMRC have allowed employer to go back to employees (if they can be found) and get P46s signed or find their NINOs for HMRC to check on their system if they really were liable to tax. Where there was no tax liability, the settlement was reduced.

Not so easy to get the penalties reduced but you could try and argue that they are out of all proportion to the tax at stake.

Nothing ventured, nothing gained!

 

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Strategies

The following strategies have been used with varying degrees of success:-

1. Mitigation - The method outlined by Halersir whereby you track down the employees involved to prove no tax liability is a mixed bag. HMRC won't do it for you usually and it only serves to reduce the penalty although may add weight to the proportionality argument if the tax due is proven to be negligible.  

2. Ignorance - Pleading complete ignorance of all involved to the requirements of payroll, particularly if the management committee can be demonstrated to be disorganised old buffers with their hearts in the right place.

3. Last Resort - Blackmail - Get the local MP involved to comment how terrible it will be if this valuable local institution is forced under due to some trifling bureaucratic oversight.

 

 

 

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Strategies

Mitigation - The employer needs to track down the ex employees and get the P46s or NINOs. In my experience HMRC will then run these against their PAYE records - should be easier now on one computer system - and may reduce the TAX liability if it can be shown strict operation of PAYE would have produced an excessive result. No guarantees so it may be advisable to ask HMRC if such a strategy is worthwhile before you embark on it - can be time consuming.

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