Save content
Have you found this content useful? Use the button above to save it to your profile.
AIA

Reasonable excuse: HOK defeat blights appeals

by
22nd Nov 2013
Save content
Have you found this content useful? Use the button above to save it to your profile.

HMRC’s upper tier tribunal victory last year in the HOK reasonable excuse case has put taxpayers on the back foot following a string of recent tribunal defeats.

Followers of this topic may remember that the original HOK first tier tribunal decision was one of several made by judge Geraint Jones QC that held HMRC’s practice of not sending P35 late filing penalties until four months after the deadline (and £500 in fines had built up) amounted to an inherently unfair use of the penalty regime as part of a revenue-collecting system.

But the upper tier tribunal a year ago overturned that decision, and dashed the hopes of numerous taxpayers with reasonable excuse appeals. Since then, a quick search on for HOK-affected cases on Bailii suggests that any 2013 reasonable excuse scorecard would be racking up points in HMRC’s favour.

A Gabelle tax analysis highlighted a string of recent first tier decisions on reasonable excuse appeals, most of which ended in defeat.

“There’s been a deluge of HOK-affected decisions,” said Gabelle senior tax investigations consultant Isobel Clift. “A lot of them came out on pretty much the same day in late October. The [upper tier decision] happened a year ago - and it looks like it’s taken all that time for those other ones to follow on.”

The cases include (among 20 or so others published since the beginning of October):

The final case in that list drew Clift’s attention. Like Smart Polymers, the appellant did not overturn their penalty on the basis of fairness, but was able to convince the tribunal of the special circumstances surrounding the delay in submitting their 2011-12 PAYE end of year forms.

The circumstances of the case suggested that TRM may have submitted their P35 on 20 April 2012 with the test flag activated, but the firm cited an email receipt as evidence that HMRC had received the return. But they were unable to present a copy to the tribunal.

Because of the lack of evidence, the judges could not decide the appeal on that basis.

However a couple of days after the P35 submission was made, a programmer walked out,  taking up-front wages with them and leaving behind sabotaged computer code and files.

Putting things right caused an overload of work on the remaining employees, tribunal judge Peter Sheppard found. 

“All of this put a great deal of pressure on the appellant’s staff and time which might have been spent on checking more carefully the acknowledgement and supporting electronic responses for the annual return and whether the annual return had been submitted properly had to be spent on attending to other matters.”

The £100 late filing penalty for not getting a proper submission in until 19 June was correctly calculated and applied, but the tribunal decided TRM had the appellant has established a reasonable excuse for the late payment.

“HMRC’s guidance on reasonable excuse is very vague, so it’s always great to have living examples,” Clift commented. “The circumstances here were quite extreme - people leaving and stealing - but they really had to make a case to get reasonable grounds. If you don’t have reasonable grounds, I can only see other appeals following the HOK decision.”

Replies (11)

Please login or register to join the discussion.

avatar
By taxhound
22nd Nov 2013 18:21

I referred a penalty case to the FTT

HMRC backed down once I actually referred it to the FTT.  It did make me think that they knew we had a good case but they would only back down when we showed we really meant it.  And of course, because they withdrew the penalty it does not show as a success by us at tribunal.

If you think you have a good case, go for it.

Thanks (0)
Stepurhan
By stepurhan
25th Nov 2013 08:47

Smart Polymers "lack of persistence"

Smart Polymers decision wrote:
The lack of contact with HMRC between 10 December 2012 and 8 May 2013 at a time when the appellant knew the matter was unresolved does show a lack of persistence...
The man tried to resolve the problem for 7 months without success. Some would say that persevering with phoning the HMRC helplines for that long was superhuman persistence. Do they really think that, HMRC having proved incompetent at resolving the technical issue in that time, it is unreasonable for a businessman to prefer to devote his time to his business instead?
Thanks (0)
avatar
By Anthony123
25th Nov 2013 09:59

Not all decisions are published

so the ones that are may be skewed towards the cases that lose on reasonable excuse.

If HMRC lose a case and don't want to take it further then unless the victorious appellant were to ask for it full reasons will not be given and the case will not be published.

Thanks (0)
Replying to Tax Dragon:
avatar
By chatman
25th Nov 2013 12:32

HMRC Blocking Publication of Lost Cases?

Anthony123 wrote:
If HMRC lose a case and don't want to take it further then unless the victorious appellant were to ask for it full reasons will not be given and the case will not be published.

Really? I have won cases that have subsequently been published.

Thanks (0)
avatar
By Robert Hurn
25th Nov 2013 13:04

We had success with one previously stayed behind HOK

Even though our client had remitted PAYE each month he never considered himself, as a director, to be an employee and subsequently did not file a P35.  The FTT accepted that he had made an honest mistake and presumably felt that it would be unfair to punish him for this.  The penalty at stake was £900.

We note that HMRC attempted to prevent our client having a personal hearing on the basis that the initial appeal was a made on the basis of Hok.  The hearing as allowed and the client successful, perseverance will always be required when challenging HMRC

Thanks (0)
avatar
By kenatnam
25th Nov 2013 13:29

Best for the country?

I wonder how many small businesses have stopped employing people because of HMRC's attitude and the onerous RTI legislation and penalty regime that is now with us? Or even shut up shop completely?

 

Not everyone has the moral or physical strength and endurance to take on HMRC. For every one that wins, how many quietly pay up and stop trading?

 

I cannot believe that this is the best way forward for our country - I just wish the politicians would wake up to the fact.

Thanks (2)
Replying to sarah douglas:
avatar
By chatman
25th Nov 2013 13:35

Politicians

kenatnam wrote:
I cannot believe that this is the best way forward for our country - I just wish the politicians would wake up to the fact.

They don't; that is not what they are there for. They are there to financially enrich themselves as much as possible as quickly as possible.

Thanks (3)
avatar
By markgosling
25th Nov 2013 15:59

Best for the Country

I think the current problems, including RTI, will be nothing compared to

the complexity of auto enrolement for pensions.

I do PAYE for about 18 clients, and used to view it as easy money.

However, with RTI and Auto enrolement, I am considering to stop offering this as a service.

Thanks (1)
Replying to lionofludesch:
avatar
By Joss
25th Nov 2013 18:05

Auto enrolment for amall employers

Hear Hear!

Absolutely dreading onset of AE.

How can small businesses plan ahead to figure out if they are making enough to afford to continue trading when this kicks in when they are not allowed to ask staff in advance for an indication of who will opt in (or who will opt out)?

I have some businesses who are only breaking even at present and only one of the two directors is taking any pay. What will they do if all their 20 non-eligible "low-paid" part-time staff decide they want to opt in? There is no money for this.

And which of the staff will self-train off the DWP website and then administer AE - to record that the staff all had the correct paperwork. There is no staff idle time available.  And where will the employer keep all this extra paperwork - there is no physical space.

And how will the Pensions Regulator cover or justify their own admin costs incurred chasing up small oblivious employers for paltry amounts unless they recoup some of their costs by charging utterly disproportionate penalties (as now for PAYE late returns and £10/day by stealth for SA).

While I am sympathetic to the concept of simplification, I feel proportionality of penalties urgently needs to be reviewed across the board if we are to believe that the purpose of tax penalties [arising due to non-compliance] is to encourage compliance rather then to collect additional revenue for HMG. A tax compliance fine should NEVER exceed the tax debt, not least because there is likely to be an inability to pay and collection costs will then be high.

Thanks (1)
avatar
By RobSmith
26th Nov 2013 08:37

Revenue generation by stealth

I have a client who has just been notified that he owes £500 for the non filing of an EC Sales List. This was for one EC sales invoice that wasn't notified because the former director had had a stroke. This is a case where there is no loss of tax to the Revenue. They say that the company had been notified that penalties would start to be levied but there is no trace of this letter. As my client scans ALL incoming documents, this is a little odd. 

The point is that, if HMRC want to notify a client that fines are about to be levied and that they will be making no further communication until the fine has reached some sort of arbitrary tipping point, shouldn't the original letter be sent by recorded delivery. 

Apparently, of all small subcontractors registered for CIS, 75% have received at least one fine. When RTI really kicks in, isn't this going to reflect similar results. And as regards Auto Enrollment, isn't this a tax increase by stealth.

Politicians of all stripe come into the game and promise they will reduce red tape. Then proceed to increase it on a logarithmic scale. Given that 80% of businesses in this country are small owner managed businesses, isn't it about time they got off their backs. These people only want to earn a living and hopefully provide jobs for others. Yet they get treated like criminals. 

Thanks (4)
avatar
By johnjenkins
26th Nov 2013 11:49

haven't you got

the message yet. Politicians and financial institutions don't want small business. In the next 10 years there will be no self-employed or one man band business. The powers that be are making it too difficult to trade.

I have often said best we all go to work and let government give us pocket money.

Thanks (0)