HMRC have confirmed that some of its first batch of 2006/07 PAYE penalty notices are invalid as they relate to returns filed online and on time. It appears that the error is human, and of 202,000 penalty notices issued on 24th September, about 8% (16,160) may be affected.

Its says that it is urgently investigating and will provide an update as soon as it can (by Tuesday 9 October at the latest). Agents, in the meantime are asked to pass the information on to their clients if they are affected by the problem.

HMRC adds that it is “very sorry for any inconvenience that this problem may have caused.” Agents are understandably unhappy, as the client invariably lays the blame for a penalty on the agent who filed the return. It is then not a pleasant task to then bill the client for the cost of appealing against the invalid penalty, however, appeal they must if the penalty is thought incorrect. It is thought that the error could cost business up to £1 million.

Interestingly, whilst HMRC point out that there is no fixed time limit for issuing penalties, they note that this is the quickest that employers have ever been notified in the last few years.

Accountingweb members who have to complain about the penalty errors indicate that significantly more than 8% of returns are affected.

New penalties are also being levied for late CIS monthly returns from 1st October. A similar glitch in CIS processing systems are an alarming prospect for the construction industry.