HMRC wins HOK reasonable excuse appeal

An upper tier tax tribunal has overturned a lower tribunal decision in which the original judge criticised HMRC for using the PAYE penalty system as “cash generating scheme”.

The tax department’s successful appeal [2012] UKUT 363 (TCC) against last year’s HOK v HMRC decision represents an important counterweight for the views of tribunal judge Geraint Jones QC, who appeared to have redrawn the rules around the fairness of tax penalties in the last year or so.

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Comments
carnmores's picture

Bosher v HMRC

carnmores | | Permalink

given that this case was also FTT will it be overturned as a result of HOK

Congratulations to HMRC...    13 thanks

dhalsey | | Permalink

You've successfully won the Hok case and so legalised the unfair collection of penalties on a technicality. Well done. Now you can go and collect your ill gotten and nefarious gains from people who in many cases had no idea they had a problem. You must feel a warm sense of satisfaction that your generation of penalties via delaying penalty notices has been rubber stamped. At best, it is incompetence leading to taxpayers being fleeced, at worst it is planned extortion. What next, will we see the return to no notifications for the 2013 P35s?

Is anyone else getting fed up with every single appeal and complaint being rejected, ignored or otherwise? This public body is rotten to the core. They've turned into a Government sanctioned body little better than racketeers and loan sharks, estimating tax then issuing interest and penalties based on that amount - even if provided with evidence to the contrary. They can routinely miss self imposed deadlines to respond to letters by months with no issue, but if you're late paying PAYE by one day you'll get a 4% penalty. If you fight back, they will simply deploy the taxpayers own money in fighting you until they find a Judge who will side with them.

Absolutely in despair. This organisation has lost its way and is now dependant on generating cash by penalising the public right left and centre.

Your comments are a bit    1 thanks

malcolm kimber | | Permalink

Your comments are a bit strong but I endorse the sentiment entirely.

As has been said before: What is sauce fro the goose is sauce for the gander.

An absolute disgrace    2 thanks

BryanS1958 | | Permalink

The decision means that HMRC can effectively carry on using inadequate systems and get the taxpayer to pay the bill for its inefficiency.  What taxpayer can afford to bring a judicial review for £400?

I'm not surprised HMRC didn't ask for costs, they've got a nice stash of ill gotten gains to pay their legal bill from.  HOK presumably couldn't afford to have legal representation attending the hearing, so the taxpayer hasn't been given the opportunity of putting forward an adequate defence.

Jon Stow's picture

Dreadfully disappointing

Jon Stow | | Permalink

There really is no reason why penalty notices cannot be sent out as soon as a deadline has passed. Leaving it months is bound to unfairly punish innocent oversights. HMRC should now remedy the situation having had their victory, but they won't in the current climate of cash-raising and patent unfairness.

Tax Avoidance    4 thanks

thelostboy | | Permalink

Forgive me if this is irrelevant but it strikes me as unfair that HMRC can win a tax case on a technicality but that intelligent tax planning based on technicalities is now immoral.

Reverse Tax Avoidance?

ken of chesterl... | | Permalink

I do hope this case gets as much publicity as the high profile avoidance cases we have seen recently.  "Iniquitous" is too mild a word.

PAYE Penalties

rogtuf | | Permalink

This is the fault of the legislature in permitting the HMRC to charge a time geared tax penalty without giving the tax payer notice that costs are accruing.  As usual, the people who permitted this unfair process, probably either did not have any understanding of the process they were permitting, or did not bother to properly consider its consequences.

Accountants just need to make sure that they charge the HMRC for their time costs when they come across penalties improperly charged.

 

 

 

Reasonable excuse?    3 thanks

Paulsoper | | Permalink

The Hok case does NOT concern reasonable excuse - Hok at no time claimed that they had a reasonable excuse, nor did they claim that a penalty was not due, the case is concerned with whether the First Tier Tribunal has a power beyond that given in the act constituting it to act in a supervisory fashion - in effect to conduct a judicial review - previously thought the province of the High Court alone but given in certain circumstances to the Upper Tier by the act constituting it.  Geraint Jones thought he had that power, the Upper Tier thought that he did not.  At the Upper Tier hearing HMRC were represented by counsel, Hok was not, the cost would have been too great but taken as a test case no costs were awarded against Hok even though the case was lost.

It s the fault the government, both the current one and the previous one who created the abomination that is the Tribunal service for no good reason that I can discern, who, as stated permit HMRC to apply penalty systems of their own devising with wholly inadequate safeguards to ensure that they are applied fairly.  The Upper decision is not about fairness, or proportionality (another argument not advanced in the Hok case) it s simply about the power that the first tier tribunal judges have.

What is sauce for the goose is sauce for the gander.    3 thanks

rbw | | Permalink

Would you and others be happy if Geraint Joines QC found against taxpayers without giving them a chance to argue their case, without vires, and without regard to the law?

Would you be happy to pay more tax so HMRC can spend more money sending reminders to people to do what they could remind themselves to do?  

Have employers lost the ability to use inventions such as diaries and calendars?

johnjenkins's picture

@rbw

johnjenkins | | Permalink

We are not saying that a penalty shouldn't be issued. It's the penalty regime and the amounts that are so vile that is the problem.

Surely the first tier has justification in saying that these penalties are ludicrous. It would have been interesting to see what the high court would have said.

Carry on and you will have a bankrupt society.

carnmores's picture

one hopes that the tax bodies will petition for a further appeal

carnmores | | Permalink

at a higher court so that this decision can be reviewed - whoops there goes a flying pig

leshoward's picture

Not 'reasonable excuse'    1 thanks

leshoward | | Permalink

This comment is correct - Hok is not a reasonable excuse decision, and that is where some of the commentary has gone astray. Had it been a reasonable excuse case, then the FTT could have decided it. However, the FTT's decision that the penalty was effectively unfair was beyond its jurisdiction, hence HMRC's successful appeal at UT.

Numerous other cases have been listed behind Hok and, presumably most will fall.

Many penalties have been issued in similar circumstances, but most are against small organisations who do not have the resources to pursue matters beyond the FTT. I would also add that the removal of the costs regime in 2009 has deterred smaller businesses from being represented, which puts them at a further disadvantage.

I do disagree with one point - the fault does not lie with the Tribunal. The penalty regulations and procedures are HMRC's work; the harsh outcomes are due to legal changes, and the way HMRC implements them. The Tribunals can only work within the law, and do not have the power to overturn bad laws.

 

Paulsoper wrote:

The Hok case does NOT concern reasonable excuse - Hok at no time claimed that they had a reasonable excuse, nor did they claim that a penalty was not due, the case is concerned with whether the First Tier Tribunal has a power beyond that given in the act constituting it to act in a supervisory fashion - in effect to conduct a judicial review - previously thought the province of the High Court alone but given in certain circumstances to the Upper Tier by the act constituting it.  Geraint Jones thought he had that power, the Upper Tier thought that he did not.  At the Upper Tier hearing HMRC were represented by counsel, Hok was not, the cost would have been too great but taken as a test case no costs were awarded against Hok even though the case was lost.

It s the fault the government, both the current one and the previous one who created the abomination that is the Tribunal service for no good reason that I can discern, who, as stated permit HMRC to apply penalty systems of their own devising with wholly inadequate safeguards to ensure that they are applied fairly.  The Upper decision is not about fairness, or proportionality (another argument not advanced in the Hok case) it s simply about the power that the first tier tribunal judges have.

Does this mean that the Adjudicator is now the route to appeal?

Richardnss | | Permalink

My company is going to tribunal shortly re a substantial PAYE penalty, similar to ones previously documented on Accountingweb. This judgment appears to reduce our chances of success, as we cannot dispute that payments were missed, and were hoping that with our unfairness / disproportionality / reasonable excuse argument we could reduce the penalty amount due if we win.

However, at the same time as making our appeal, we also submitted a complaint to HMRC re the "unfairness" of its conduct. As we are not happy with HMRC's response to our complaint we have 6 months from the final HMRC reply to appeal to the adjudicator. The adjudicator's guidance states that:

"she cannot look at: 

  • complaints where there is a specific right of determination by any court, tribunal, or other body with specific jurisdiction over the matter.".

Given it appeared before this judgment that a tribunal could potentially reduce our penalty I presumed that the adjudicator route was not worth continuing with on the above basis. However this HOK decision would appear to open the adjudicator / parliamentary ombudsman route.

I'd welcome any comments into my logic and whether anyone thinks an adjudicator appeal is a worthwhile exercise

 

johnjenkins's picture

Bin there done that got the teeshirt    1 thanks

johnjenkins | | Permalink

The adjudicator will only look at it after 2 tax office reviews. Then, will only look at compliance. If HMRC have followed correct proceedure you got no chance, even with parliamentary ombudsman. Your only route (expensive of course) as I see it is to go through the 1st and second tier. If you win at first HMRC will win at second. Then High Court. This is where you stand a good chance of winning on the grounds of unfairness and unreasonableness.

leshoward's picture

Adjudicator route    1 thanks

leshoward | | Permalink

johnjenkins is right; since the issue is not 'reasonable excuse,' but one of fairness, the options open to the taxpayer are somewhat restricted.

However, it is possible to go to the Adjudicator and then the Parliamentary Ombudsman, as suggested (and perhaps if a lot of similar cases were pursued this way, there might be greater impact). The 'fairness' argument really needs the much more expensive Judicial Review option.

I am told that HMRC now send more and clearer warning letters in respect of PAYE defaults, which is an indication of the number of complaints that had previously arose.

There remains the problem that taxation legislation is complex, relating to PAYE, SA, VAT, and many more; and even small organisations are obliged to submit and pay all their Returns promptly, while still running their businesses. If HMRC moved towards a single all-encompassing system, rather than numerous different taxes, life would be much easier!

johnjenkins's picture

We all know

johnjenkins | | Permalink

that you have to pay a penalty if you don't deliver on time or you make a mistake, but the level of penalties is out of all proportion to the offence. £1200 for not submitting tax return on time when no tax is due - absolutely ludicrous.

Whats good for the Goose...

dhalsey | | Permalink

My issue with the system is that HMRC are guilty of the very crimes they fine taxpayers heavily for, and get away with it.

To my mind, if you fine an employer X% for late payment of PAYE for more than one month, then when HMRC withhold repayment of overpaid PAYE until November from May with no valid reason, they should have to pay the employer the same amount. They owe one of my clients over £30k where the guy was so terrified of PAYE penalties, he deliberately overpaid by a large amount. What motivation is it when he can't get it back?

And when you get fined daily penalties for not putting in a tax return after three months, why should HMRC avoid daily penalties where they take the same amount of time to reply to a letter in a tax investigation or for tax credits etc?

When you risk a misdeclaration penalty or penalty for carelessness in a tax return, why can HMRC utterly cock up someone's tax code or registration details and then get away with it?

It's the utter lack of proportionality and "do as I say, not as I do" that gets me.

the abomination?    1 thanks

Paulsoper | | Permalink

The General Commissioners used to do a good job dealing with these largely admin matters and the Special Commissioners did their job with the technical stuff.  The Labour administration loved the idea of a tribunal under a judge - and a lot of these judges ared now doing the work that used to be the province of the general commissioners at a vastly increased cost.  A friend who was a general commissioner tells me that although they were invited to apply to become members of the First Tier Tribunal not one, not one single general commissioner to the best of his knowledge, was appointed.  It was simply change for the sake of change with no discernable benefit that I can detect...

re: Does this mean that the Adjudicator is now the route..    1 thanks

Paulsoper | | Permalink

Remember in the Hok case no arguments concerning reasonable excuse or proportionality were advanced.  You are still able to argue that the penalty is disproportional, and to be blunt, you probably stand a much better chance than unfairness if indeed the penalty is disproportional to the offence.  The adjudicator cannot look at complains where the courts have a right of determination because their finding would be binding upon her.

HR

secondhand_22 | | Permalink

Human Rights Act can help...

If the penalty is out of proportion to the offence.  (Caveat -  I think I read somewhere/was told in the pub)

As was said, £1200 for late submission of a nil return - stupid. 

Yuo've missed the point.

malcolm kimber | | Permalink

Yuo've missed the point.

It's not about reminders.

It's about sending penalty notices promptly and........not allowing time to pay once the notice is issued.

There needs to be a case to penalise repeat offenders. But only the truly negligent.

There is no case to support a "lazy" approach from a government department when it stands to profit from its own tardiness!!

Oh and by the way.

if only taxpayers had similar powers aginst HMRC when the tables are turned. Like not repsonding to correspondence within a reasonable time.

Like not repeatedly getting PAYE notices wrong and taxpayers having to incurr costs (eg but not limited to: fees, time and phone calls or postage).

Etc

 

what next?

mikeagate | | Permalink

It has taken over 3 months for HMRC to write to me and tell me they won the case and ask if  I still wish to contest my similar case  (8 months charges). My inclination is to continue even if it is a waste of time.

Surely a reasonable excuse for further monthly penalties is that they did not notify the first penalty. Therefore the first tier can hear the appeal for subsequent penalties or is it all regarded as just one penalty.