Am dealing with a client who has 4 years arrears of tax returns, with penalties of £1600 x 3, + £100 (so far) for 2013-14. Total £4900.
No reasonable excuse for delay - just head-in-sand syndrome.
No tax liability for any years (nor available funds to pay the penalty, and probably not also for our fees)
Has anyone had any success in like situations getting any reduction, and if so how?
With kind regards
Clint Westwood
Replies (29)
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Reason for returns?
Is there any scope for getting the returns cancelled as not required? When returns are cancelled, the associated penalties disappear as well.
Extending the application deadline, under s.8B(6)(b) TMA 1970
If the client was subject to PAYE during the penalty period then it makes sense to make an application under 8B(6)(b) because you could argue that the client was under no obligation to file a return (well, notify) applying 7(3). HMRC do not generally have a good record of having issued notice to file....
S 8B and 12AAA were inserted with the specific purpose of helping the taxpayers against a mechanised penalty regime.
Uninformed taxpayer
The uninformed taxpayer route?
Accepting (incorrectly) for the moment that directors have to do tax returns. The uninformed taxpayer sees the cessation of their self-employment as a cessation of the need to submit tax returns. They know that all of their income is taxed at source, so they have assumed any notices they did receive were errors. They have further assumed that the problem will sort itself out when it has become clear all their income is now taxed at source. Foolish, but HMRC can't expect the average person on the street to understand all the nuances of tax law. Plea for mitigation from foolishness.
I have had mixed success with this route, but did get lowest penalties agreed on some returns where tax was due by using a misunderstanding argument. For clarity I should note that I believe the client genuinely did misunderstand the rules in that case. I wouldn't do it for someone I thought had just hoped to get away with it.
@Stepurhan
If your only source of income is taxed under PAYE you do not need to notify/file a tax return. Full stop. If HMRC have issued a notice (unless over £100k) then they ought to withdraw it - taxpayers cannot be penalised for failing to follow mechanised compliance when there is no tax involved.
Yes and no
I agree that there is no requirement to notify or voluntarily file a tax return if all your income is taxed at source under PAYE or however (whether a director or not). If your only source of income is taxed under PAYE you do not need to notify/file a tax return. Full stop. If HMRC have issued a notice (unless over £100k) then they ought to withdraw it - taxpayers cannot be penalised for failing to follow mechanised compliance when there is no tax involved.
But HMRC have a statutory right to request a tax return from anybody. You can usually get them to agree to cancel a tax return (and associated penalties) where there is no need for it, but there is no statutory right to demand cancellation (if you believe otherwise, please link to statute). Unfortunately this makes it impossible to get returns erroneously issued to directors cancelled.
@taxguru
If your only source of income is taxed under PAYE you do not need to notify/file a tax return. Full stop. If HMRC have issued a notice (unless over £100k) then they ought to withdraw it - taxpayers cannot be penalised for failing to follow mechanised compliance when there is no tax involved.
whilst in absolutely no way disagreeing with your comment - and it has been rehashed ad nauseum here in the past - read the interesting, and unchallenged view set out by the FTT in para 7 in the background notes to TC03930 Fisher -
http://www.bailii.org/uk/cases/UKFTT/TC/2014/TC03930.html - now where on earth did they get that from!?
This thing does concern me (for other people rather than for myself). Especially young people seem to move home more often than ever. Someone registers as self employed, maybe does one tax return, moves home, stops being self employed, doesn't do a particularly good job of telling HMRC.
HMRC send out a bunch of "you need to do a tax return" letters to an address the client's no longer at. A few years later debt collectors catch up with the individual trying to collect huge sums for non submission of multiple years tax returns.
Fault would initially be the clients for not informing HMRC when they stopped...but that one slip, when nothing earned, could still result in hefty penalties.
I very much hope in the kind of situation I've described above the penalties would be waived...even where the taxpayer couldn't argue they were outside self assessment (as I appreciate that would be the first line of defence).
Intelligent design
Cases likes this make you wonder if the penalty system was deliberately engineered to produce results like this, hefty penalties with a slim chance for appeal when there is no tax at stake whatsoever.
If you compare the £5k on the hook here with the penalties someone who did not bother to inform HMRC of their self employed earnings for the same period, it demonstrates how unjust the system is - not only would HMRC likely settle for less tax was actually due, the penalties would most likely be mitigated or even suspended assuming co-operation.
How can this be satisfactory unless it is the point of it in the first place - raise more from easy win & non-appealable penalties for trifling non-compliance issues from those at least trying to meet their obligations instead of paying expensive officers to undertake drawn out investigations?
Try and change the system by commenting before 11 May
HMRC are unhappy with the way that the penalty system works and issued a consultation document on 2 February. See link at
https://www.gov.uk/government/consultations/hmrc-penalties-a-discussion-...
I hope that everyone who has replied on this forum, and others, will take the time (maximum 15 minutes) to read the consultation document and to give HMRC their views (another 5 or 10 minutes). The deadline for comments is 11 May.
A simple suggestion might be to return to the position where all penalties are tax geared and therefore if the tax due is £nil the penalty is £nil
consultation comments
I agree, this document should be commented on!
In particular, penalties for late returns where no tax is payable are a departure from tradition, having only been added in 2012. The 'man in the street' is probably still advising people not to bother. How do you tell people about these changes, they ask? Try adverts in bus shelters.
Keep Writing
I think that cases such as this are hopeless, I have a colleague who disagrees. He writes again and again and more often than not the penalties are cancelled. He has even had husband and wife clients in the same circumstances where one has the penalties cancelled and the other has not.
Where?
I think that cases such as this are hopeless, I have a colleague who disagrees. He writes again and again and more often than not the penalties are cancelled. He has even had husband and wife clients in the same circumstances where one has the penalties cancelled and the other has not.
Where does he write to?
oh, a comedian
Thanks, very clever. And helpful.
I actually agree with your initial comment in that in the past I have deemed such cases as hopeless.
I have also tried in the past to argue such cases and dealt with various HMRC departments and tribunals. While not all have been unsuccessful the percentage win is low.
It appeared from your missive that your 'friend' could have knowledge of a particular department that may be worth trying in the first instance.
Forgive me for trying to illicit such information from you and not explaining myself correctly.
@Clint
it's First Tier which cannot create precedent, and anyway I think that would be obiter anyway wouldn't it in setting the background rather than the decision, BUT it is slightly worrying that it might get taken as fact
@PaulD
Thanks but I'm not too sure how that is relevant to the OP. The FTT case you're referring to is about whether the taxpayer had a 'reasonable excuse' which obviously she didn't have. And we're not discussing 'reasonable excuse' here. In mechanical compliance failures 'reasonable excuse' rarely works unless there is something exceptional.
The OP's query is whether one should take it up with HMRC applying 8B(6)(b). Our experience has been successful so far, despite the HMRC tendency to be robotic in their responses. I don't think the FTT has the jurisdiction where HMRC refuse to entertain a request made under s.8B(6)(b). So the FTT option may not be worth the time and effort.
@taxguru
it was purely based on the follow up from Clint saying the client was a company director... so you can ask to have the requirement to submit withdrawn, but HMRC will say that the client was a director and has to make a return. Not in TMA but now HMRC have an FTT comment they can wave about and we're back to they can ask whoever they like to make a return and under no obligation to allow withdrawal of the requirement as they see fit.
Again on the face of it rubbish and I'm not disagreeing that there ought to be no reason to make a return, but ultimately HMRC have already required
HMRC power
HMRC will say that the client was a director and has to make a return.
Hello Paul,
If HMRC issue a notice then we need to file the return - there is no dispute on that. And the notice never say you need to file because you''re director!! What we are discussing is to have that notice withdrawn.
Edit: To my knowledge the idea of inserting s.8B came from HMRC and in informal discussions HMRC seemed agreeable to be flexible when applying the withdrawal period.
Para 7:
The Appellant was a company director and received dividends of £35,466.00 from UK companies. Therefore she was required to file a Self-Assessment Tax Return for the year 2011-12 in accordance with Section 8 Taxes Management Act 1970.
The background merely sets the scene against which an appeal has been made. In other words where a s.8 notice has been issued the taxpayer is obliged to file a tax return. That is the law! To my eyes the other information that a) she was a director, b) she received dividends etc appear as facts not as an observation or view of the FTT.
As regards precedence we have enough HMRC correspondence on file from different inspectors claiming that FTT decisions don't set a precedent!!
we had one of these
but it may be a one off situation...
the client was a walk in and had been issued with returns to complete even though he had no income above PAs. He too had been ignoring them for about four years.
He could not deal wit the stress of completing a return even though it only constituted putting one figure on it.
We asked him to go to his doctor and get a letter that confirmed he had a disorder which prevented him from being able to deal with thing such as tax returns.
Guess what?
He got one, we sent it in with the completed returns which showed no tax and penalties disappeared.
I was going to say
I was going to ask if you had investigated the health route. Sometimes the `head in the sand' stance relates to not only tax returns. Lets face it, to the poor old unadvised taxpayer, and even some who do have accountants, dealing with the taxman can be stressful, infuriating and downright scarey.
I would try a letter on this basis, asking them to stop sending demands/letters with ever increasing amounts of tax, interest,penalties on them and give him a breather. If it turned out that other things were happening at the same time he was getting demands I would explain this too.
I once dealt with a an enquiry where the client had mental health issues and refused to deal with anyone in authority at all, not even in correspondence. Had to resolve all issues through me, and they closed it with minimum tax and penalties.
The answer is clear...........
"nor available funds to pay the penalty, and probably not also for our fees"
Why bother with this?
Are you a charity?
Is a director always required to file an SA return - or not?
There seems to be some uncertainty in this thread about the need for a director to submit a SA return if sufficient tax has already been deducted at source.
Stepurhan said, in the sixth post, that “Accepting (incorrectly) for the moment that directors have to do tax returns.” Then, in the tenth post, that “I agree that there is no requirement to notify or voluntarily file a tax return if all your income is taxed at source under PAYE or however (whether a director or not).”
Paul D Utherone referred the FTT in para 7 in the background notes to TC03930 Fisher, namely “The Appellant was a company director and received dividends of £35,466.00 from UK companies. Therefore she was required to file a Self-Assessment Tax Return”
However, others noted that an FTT decision is not binding and that paragraph 7 seems to be only a recital of facts. Indeed, the paragraph could be read as stating that the appellant received dividends because she was a director and it was the dividends that triggered the need to file the SA return.
Is there any regulation that specifically requires a director to file? I am not aware of one and I am aware that this is not a new AWEB topic (for example, in 2010 https://www.accountingweb.co.uk/anyanswers/do-directors-have-automatical...) Is there any regulation that states, or implies, that they do not?
On a related point, I noted that the HMRC guidance on who must send a tax return also says that a trustee of a trust must do so. I can understand that the trustee must do so for the trust but is the trustee also required to submit a personal SA return?
Not
... unless HMRC have required one. But this has been rehearsed here so often it's not worth starting again here. My point re the case I quoted was ONLY that the background notes n the case report gave HMRC's unfounded view (based on legislation) that ALL directors MUST be in SA as an apparent fact. I did also say that as FTT it set no precedent, and was probably obiter so not relevant if it did.There seems to be some uncertainty in this thread about the need for a director to submit a SA return if sufficient tax has already been deducted at source.
Stepurhan said, in the sixth post, that “Accepting (incorrectly) for the moment that directors have to do tax returns.” Then, in the tenth post, that “I agree that there is no requirement to notify or voluntarily file a tax return if all your income is taxed at source under PAYE or however (whether a director or not).”
Paul D Utherone referred the FTT in para 7 in the background notes to TC03930 Fisher, namely “The Appellant was a company director and received dividends of £35,466.00 from UK companies. Therefore she was required to file a Self-Assessment Tax Return”
However, others noted that an FTT decision is not binding and that paragraph 7 seems to be only a recital of facts. Indeed, the paragraph could be read as stating that the appellant received dividends because she was a director and it was the dividends that triggered the need to file the SA return.
Is there any regulation that specifically requires a director to file? I am not aware of one and I am aware that this is not a new AWEB topic (for example, in 2010 https://www.accountingweb.co.uk/anyanswers/do-directors-have-automatical...) Is there any regulation that states, or implies, that they do not?
On a related point, I noted that the HMRC guidance on who must send a tax return also says that a trustee of a trust must do so. I can understand that the trustee must do so for the trust but is the trustee also required to submit a personal SA return?