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Member wins £5,000 PAYE penalty appeal

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2nd Dec 2011
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AccountingWEB member Philip Seligman struck a blow for fairness and proportionality this month when a first tier tribunal overturned his client’s £5,000 penalty.

A new penalty regime came into force on 1 October to put a £3,000 cap on late filing penalties, but AccountingWEB members are still fighting rearguard actions against much larger sums levied on businesses for failing to file PAYE and CIS returns on time.

The issue was raised once again last month by a simonp51 whose client received a penalty notice from HMRC for nearly £20,000 - 4% of its £500,000 annual PAYE bill - after habitually filing returns a day or two late. During a PAYE visit in March 2009 the inspector gave no indication the company was paying late, nor did he mention the possibility of any penalties.

In response, 10 similar cases were brought to light, one of which MacolmMcFaurlin succeeded in getting wavied under internal review due to disproportionality. Several others were heading towards the tax tribunal, including one client represented by p.seligman, who appealed penalties on payments that were late by one day every month.

That hearing was held on Monday 24 October and a fortnight later word came back that the appeal was successful on the basis of reasonable excuse.

“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,” said Seligman, who then received a letter from HMRC on 23 November cancelling the penalty. Another client in very similar circumstances is appealing a £8,000 penalty using the same argument before an internal review.

The successful appellant had paid by BACS, but didn’t realise the payments still took three days to clear so they ended up being a 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,” Seligman explained, referring to several of the cases listed in AccountingWEB’s Reasonable excuse scorecard:

  •  Anthony Leachman t/a Whiteley and Leachman (TC01125), where the tribunal judge held a genuine mistake was reasonable excuse.
  • HMD International (TC01322), where the tribunal judge said there was no reason why HMRC shouldn’t send out immediate penalty notices. 
  • N A Dudley Electrical Contractors (TC01124) on fairness.

“I 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 straightforward for HMRC to send such a notice.”

Based on tribunal judge Geraint Jones’ decision in HMRC, Seligman also argued that as an arm of the state HMRC has a common law duty of fairness - however this defence could be under challenge in the Hok case.

“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.”

The decision in this case was dated 7 November, but has not been placed on public record yet. When it does appear, the case number should be TC/2011/06328.

Replies (18)

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By Ermintrude
05th Dec 2011 11:20

Excellent!

I'll quote the judges words on the above cases on my 2nd appeal on a P35 late filing penalty (recently posted under Any Answers).

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By Robert Hurn
05th Dec 2011 11:45

Bridge Building Opportunity

There really is a great bridge building opportunity for HMRC here.  If they were to announce that in future P35 & CIS penalties will be advised immediately a default occurs - saving the £400/£500 penalties generally issued for late P35 - It would earn much goodwill with advisors and tax payers alike.

The delayed penalty notifications are giving agent authorisations a run for their money as the biggest bone of contention with HMRC. By simply adjusting their computer systems to issue P35 penalties 1 day after default would lead to administrative savings by HMRC.  The huge volume of appeals experienced each year would taper off sharply - most tax payers will curse but immediately pay £100 at £400 plus they are generally game for a fight.

Come on HMRC you keep telling us how keen you are to work together - why not make this simple change and earn much needed goodwill with agents?

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By simonwwhitt
05th Dec 2011 11:47

Faster Payments

Not directly relevant - but it is as if HMRC deliberately makes it difficult to comply since the HMRC bank account does not accept payments under the banks' "Faster Payments" system of same day transfers.  So if for any reason (sickness, forgetfulness etc.) we fail to make the payment to HMRC on the designated day in advance of the deadline we have to pay to make a CHAPS transfer rather than just use FP.  There is no excuse for this - just HMRC trying to collect more penalties - and that should be against the law.

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Replying to David.dgwright.co.uk:
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By glynisbm
05th Dec 2011 11:57

Ahhh... you mean "unjust

Ahhh... you mean "unjust enrichment"........

Banks and building societies are prevented from doing this by way of the Consumer Protection from unfair trading (CPUTR) regulations

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By Paul Soper
05th Dec 2011 12:04

Faster Payments

Is there any good reason why HMRC should not accept payment under the faster payment regime?  Looking at the system it seems able to handle payments of up to £100,000, although different limits may be set for commercial customers - but can the explanation be to maximise the penalty receipts???  It seems like it.

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Nichola Ross Martin
By Nichola Ross Martin
05th Dec 2011 12:34

Mixing penalties

Just to point out that there is possibly confusion here as this article is mixing up two different penalty regimes:

The part about BACs relates to Late payment and the refs to Leachman, HMD and Dudley are all Late filing. We are seeing some different issues raised in the tribunals although the reasonable excuse remains a defence.

First off, we are probably missing something vital, as is not odd that an officer would not mention penalties in March 2009 as the new regime Sch 56 FA 2009 did not kick off until 6 April 2010!

I do think that to get off because you did not realise that BACs payments took three days may seem pretty lame, although until one can consider the background and whole circumstances it is not possible to say, because I would guess that most employers pay staff using BACS and so they would know the clearing dates.

Virtual Tax Support for accountants: www.rossmartin.co.uk

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Replying to Fast German Car:
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By jonbryce
05th Dec 2011 13:08

Re: Mixing penalties

The issue is that had HMRC notified them on 20th May 2010 that their payment was late, they would have scheduled the BACS payment a few days earlier in future months and avoided all the subsequent penalties.  They didn't and waited about a year before collecting what was by then a much higher penalty.

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By simonwwhitt
05th Dec 2011 12:53

Attitude

The point that is being made by myself and others that is common with the filing penalties listed in the article is that HMRC is not interested in getting people to comply with deadlines (otherwise it would make it easier to do so and would warn people immediately they are in default rather than allowing the penalties to build up) - but rather it wants to maximise the penalties that it extorts for minor transgressions.

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By Robert Hurn
05th Dec 2011 14:27

Not lame at All

NRM - I do think that to get off because you did not realise that BACs payments took three days may seem pretty lame

The vast majority of small employers and those using CIS subcontractors do not use BACS they are still paying by cheque or bank transfer.  It appears that HMRC's demand for cleared funds on the due date coincided with THEIR choice to change bankers form the Bank of England to Santander - Why should taxpayers suffer interest and penalties as a result.  The fact that HMRC have chosen to bolt the faster payment door indicates that this is simply yet another ruse to raise penalties.  HMRC reputation will never improve until they start to act in better faith - but of course they don't really care - just rename Victim Support to Customer Service and they have served the public.

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Replying to Paulsoper:
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By pholcroft
05th Dec 2011 16:17

All banks will use faster payments from 2012

bobhurn wrote:
It appears that HMRC's demand for cleared funds on the due date coincided with THEIR choice to change bankers form the Bank of England to Santander - Why should taxpayers suffer interest and penalties as a result.

Ah that explains the issue, Santander are the worst bank when it comes to faster payments. Thankfully from the 1st of January 2012 this will no longer be an issue as all banks are forced from that date by the FSA to use faster payments for any amounts up to £100,000.

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By pauljohnston
05th Dec 2011 16:10

Faster payments

Surely the Govt wants the money as fast as possible so to reduce its debt.

I cant see any logic in joining a bank that does not offer faster banking.  If it is cost then someone needs the sack for not doing all the maths.

Goverment borrowing costs must dwarf the savings. 

In any case shoud not it all be with RBS - since we the taxpayer own over 60+%.

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By supremetwo
05th Dec 2011 17:30

B of E cheques immediate.

THEIR choice to change bankers from the Bank of England to Santander.

ISTR that cheques via the HMRC BofE account were cleared immediately on the day of receipt.  

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chips_at_mattersey
By Les Howard
05th Dec 2011 17:29

There are loads of these cases in the system!

There is a precedent case (Dina Foods Ltd, UKFTT 709) which HMRC will be using as the cases reach the Tribunal. This does provide some balance against the Hok Ltd case.

One problem is that HMRC had previously allowed taxpayers to render payments late without sanction. This creates a perceived unfairness now that penalties are applied under Sch 56, FA 2009. The Tribunal has held that the rate of penalty is not disproportionate.

Further, many taxpayers are proceeding to Tribunal without professional representation, which leaves them at a further disadvantage.

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Nichola Ross Martin
By Nichola Ross Martin
05th Dec 2011 19:49

Another error?

The new regime that came into force on 1 October is surely late filing for SA, so not the same as these cases.

Re: BACS well, I am not that hard, I concede that if you are unfamiliar with it then you might be late a couple of times however without knowing the details of a particular case then it is hard to play judge.

I heartily agree about the faster payments though. HMRC collects £400 billion and it wants to raise an extra £7 billion and it is charging absurd penalties, when it could just accept faster payments and...get paid faster, and then put all that on overnight depost (do you know I think I know a bank or two that just might want to borrow that too).

Please will someone pinch me!

I have made a summary of Dina Foods  that is the other sort of habitual late payer.

 

 

Virtual Tax Support for accountants: www.rossmartin.co.uk

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By simonwwhitt
06th Dec 2011 15:07

Faster Payments

HMRC state on their website "HMRC cannot accept electronic payments sent using the Faster Payment Service (FPS) " - this is untrue - HMRC chose not to accept Faster Payments.  The account is with Citi - and they do accept Faster Payments into all of their other Sort codes - so it can only be because HMRC instructed them not to accept Faster Payments that this sort code will not accept them.

A blatant abuse of process by HMRC whose sole purpose can only be to maximise penalties.

 

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By pauljohnston
06th Dec 2011 16:49

making self-assessment payments of tax

Many of my clients dont have payslips so how do they know whether to make the payment to the Shipley or Cumbernauld a/c number as shown on HMRC website.

Yet again an easy system made more complex.  Why oh why HMRC?

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Nichola Ross Martin
By Nichola Ross Martin
07th Dec 2011 13:19

Lack of faster payments

This is one of the Treasury Select Committee to pick up and force some action to increase the efficiency of HMRC, me-thinks.

Surely the interest earned on getting paid faster would be more than the amount raised by penalties, especially given that penalties are "not meant to be a revenue raiser?"

[***]-up or conspiracy?

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By pauljohnston
07th Dec 2011 17:47

Nichola

I would guess that to implement would mean that that HMRC staff would have to work harder and faster.

 

However Pholcroft above has indicated that HMRC has until the end of the month to get its house in order. From that date all banks have to use faster payment service.

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