Mitigating 2005/06 PAYE penalties: What are your grounds? By Nichola Ross Martin

The following statement was issued to AccountingWEB in response to the issues raised by members in the recent items Agents up in arms over P35 penalty avalanche and P35 penalty determinations:

We sent out 2005-06 penalties later than planned because we wanted to take proper account of returns we had not fully processed beforehand. For the same reason, we have chosen not yet to issue reminders for 2005-06 returns. We have issued penalty notices only to those employers where our records show an outstanding return for 2005-06.

Employers who believe the penalty is incorrect must appeal in writing to their HMRC office by 23 April. The appeal should state the reason why the penalty is incorrect, and details of any return that the employer believes was properly submitted. Each appeal will be looked at on its own merits.

We have issued a penalty notice where we only hold a test submission for an employer, not the final return. This is correct as we cannot interpret a test return as being what the employer intends to send on their final return. We have no evidence that this is a common issue and we will look at such cases as we get appeals from employers.

Additionally, below are other points on this issue to be aware of:

The business software industry trade body BASDA offered two views on the issue. Chief executive Dennis Keeling received a £900 penalty notice for his consulting business. Keeling had registered with HMRC to file all his forms electronically two years ago. But when he tried to file a nil P35 return last year, the online system would not let him as the mechanism had been blocked to prevent fraudulent claims for the £250 online incentive payment.

"I have submitted an appeal, on paper in the post," he said.

According to Keeling, HMRC had pressed software developers to support the test run facility in their programs to weed out as many filing errors as possible. Many developers did as they were asked, but BASDA was concerned it would turn into "a minefield", Keeling said, especially since HMRC opted to send back the same message as if the test were a live submission.

Still stung by his personal experiences, Keeling raised several points:

• After the debacle of 2004-05 (which is still being processed), HMRC said it made great strides last year. "If they have cleared 95% of the returns, why did it take them nine months to issue the penalty notices?" Keeling wondered.
• HMRC appears to have set off a huge batch run and dispatched the notices, without anyone checking the validity of the notices.
• The timing of the PAYE penalty notices couldn't be worse. "They're expecting customers to file electronically at the same time as online filing is getting bad press," Keeling said.

BASDA chairman Kevin Hart is also the manager responsible for Sage's strategic relationship with government. He reported that Sage had not picked up any complaints about penalties - mainly because the company had decided not to support the PAYE online test flag facility.

Hart suggested that the test mechanism had been used as a way to deal with some of the other issues around online filing, such as missing authorisations which caused a great number of errors, and the problem facing PAYE filers like Keeling who had no employees - and had no means to file.

"There's a need for a greater degree of pragmatism in the decisions that are taken," Hart said. "HMRC needs to provide a credible checking facility via third party software. It's the pragmatic way to treat the underlying causes rather than the symptoms."

We appealed against each penalty recently received (about 30) and sent with each appeal a copy of the email that we had originally received from the Inland Revenue confirming recepit.

For one client we have received notification that our appeal has been accepted. In the letter from HMR & C it states:

"Our Head Office has advised me that you should have been made aware, when filing on line that the submission would be treated as a test by yellow flags appearing on your screen. This does not however appear to be the case for the year ended 5th April 2006 as my understanding is that the first time that agents or employers became aware that their P35 was to be teated as a test submission was on contacting this office enquiring as to when they would receive their on-line incentive, or on receipt of a penalty determination"

Hopefully all districts would have been contacted by Head Office so we are now expecting an avalanche of accepted appeals.

Thanks for bringing us your news, Michael. It could be a big relief to many people in the same boat. But my current advice to anyone affected would be to act cautiously and ensure that your appeal letters are drafted and sent - with copies of the emails acknowledging receipt of the return, as you did.

In response to a call on this point, an HMRC spokesman replied: "Everything is on a case-by-case basis. If you have any query about penalties, the best thing to do is to discuss the individual circumstances with your local office."

As several members - and Nichola above - have pointed out, having to appeal each penalty individually adds to the workload and stress of employers, agents and HMRC. I raised this and a couple of other issues with the department and we are hoping to continue the dialogue as part of a follow-up Question of the Week article.

If anyone has received similar rulings to Michael's appeal, do let the rest of us know. And any further topics of discussion - or constructive suggestions about how to improve the situation for the 2006-07 PAYE filing season - will be welcomed.

John Stokdyk
Technology editor
AccountingWEB.co.uk

Sadly the discrepancy between the date of printing and date of receipt is normal. A few months ago I asked Shipley why it happened and was told that the posting of notices was outsourced. A delay of five working days between printing and posting is normal.

This is also a problem with online agent authorisations where there is 1 - 2 days delay before the "issue" of a code number and another 5 working days before it is posted so it can easily be two calendar weeks before the client receives the code.

On the first working day, I applied to be a CIS agent for our clients but do not expect our appointment to be active before the end of this month.

"There is clearly a great deal of pressure on HMRC to increase revenue as well as cut its costs, and ours, through its program of red tape reduction. Issuing incorrect penalties may well be a great way of increasing revenue... "

I've long supected the above. Is no-one in HMRC or the Government aware of the moral hazard of what I consider to be tax evasion in reverse?

Or are those in control now so bereft of any morals or responsibility and possessing a 'tomorrow never comes' mentality that they simply don't care?

We had a case part way through the year where we still had not recieved the £250 filing incentive for a client . We were given the excuse that a "test" return was submitted by us . We do not run test returns ! We checked the client's record and found that no "test" had been run and as far as we were concerned a full and properly acknowledged return had been submitted . Their own email acknowledgements tell you when it is a test return and therefore not accepted . The email they sent us fully acknowledged receipt and said it had been processed - we suggest taxpayers dig out their acknowledgement emails . We nevertheless had to re-file ( exactly as we had done before ) to get the return into their system as filed . We had no late penalty and the £250 was duly paid .

Revenue IT is getting better but it seems still not the standard of a corner shop in certain areas . When they issue a £900 penalty after 10 months without warnings within one month of the filing deadline one would suspect they are failing in a duty of care to their customer to tell them they did not make a return by 19th May ; or do they prefer to let the penalty build up ?? I am sure they will now be sending timely reminders left , right and centre for payment of these penalties ! I suspect this is the real issue that taxpayers and agents cannot accept .

The majority of these penalties should be waived as no one has the opportunity to check online if the data was captured by HMRC. You cannot rely on the Agent facility as it takes months for a lot of the submissions to display the "YES" sign. Surely, this should be updated in real time as checking through 300+ receipts is very time consuming.

HMRC are starting to send out reminders for the 2006/07 submissions as a client has contacted me today asking why we had not sent in the 2006/07 returns. As these are not due until 19 May, would it not be better to send these reminders out say 15 May so that employers can utilise the statutory concession period. HMRC will then be within their rights to issue a second reminder/penalty notice in June, instead of nearly a year later.

Prior to filing online, we never had any late returns in the past 10 years because we got a receipt from the local tax office for every one. Last year we submitted 300+ online and received 6 penalties. 5 were not due and one according to our software was submitted on 15 May. Penalty £1100.

Eric,
A man was killed during the so-called "great" train robbery, this is why those involved were continually chased.

There is no comparison to make between these two crimes.

Just my opinion.

Sarah

I really share Eric's frustration; but it is more akin to Robert Maxwell than Ronnie Biggs.

But where in the press was Gordon compared to Robert Maxwell, when he raided the pension funds? Nowhere at all!

The 'accidental' fines for non-submission of Partnership Tax Returns a couple of years ago was briefly covered and the Revenue had to apologise when that scam was rumbled.

But it's a meeja blackout once again.

The amount of venom I hear from basically law-abiding and generally mild-mannered small/medium businesses these days is eye-widening.

One day, many will simply withhold all of their January tax payments, until the Government is forced to act by their own impending bankruptcy - financial as well as moral!

I am having problems submitting the 2006-07 PAYE forms for a client who has received a penalty notice of £900 for 2005-06. Despite receiving last year an acknowledgement that everything was okay, I now have a message stating that the software has detected that a previous online filing submission was not received from the Govt server. On checking for a response, the message states that the submission has been received but a response was not.This maybe a temporary problem. Try later.

Any suggestions?

Like many organisations we received a penalty notice three weeks ago and started to fret . For a couple of days we did a passable impression of an Ostrich. And I'm glad we did. By the time we dared to focus on the issue again Accounting Web had picked up the story and included some advice regarding points to include in a letter to HM Inspector. We wrote 14 days ago and received a revised notice on Saturday. We can't find any evidence that we did file a P35 (though I'm sure we did so on-line) but pleaded that, as a small company we'd paid PAYE, nothing was owed and that we'd (re)sumbitted the P35 for 2005/6. As we can't find any evidence that we did post on-line I assume that we have been remiss with the paperwork and that we have been in line for a fine. It's just great that now its £100 not £900.

So thanks not just for covering the issue but including the practical advice.

Last week , I started electronic filing of P35's for 2006/2007 and received from the HMC & E, for each one filed, the acknowledgement e mail as last year.
On filing some more today, the wording of the e mail has changed. An additional sentence has been added as follows:

"If this was a test transmission, remember you still need to send your actual Employer Annual Return using the live transmission in order for it to be processed. "

This is not a confirmation at all now. What on earth do we do now? The only solution is to send a letter for each client to HM C & E asking for written confirmation that the P35 has been electronically received.

A small company came to me for the first time with this £900 penalty. We filed a zero P35 online and wrote to the revenue appealing just on the grounds of zero liability (& hope). This was before the original story. The client heard back this weekend and the penalty has been reduced to £100 with no question.

But a £nil return/ liability used to reduce the penalty to £nil! Not £100.

You're being dragged down the slippery slope. Being kicked in the 'nads once is better than being kicked there nine times, it's true. But why should you be treated like that all of a sudden?

What goes 'round...

Maybe we could start something on A-web, whereby "good" guys at the revenue, who are helpful, timely and accurate, have their details posted by happy members for us all to use. Name, office, direct number would be good.

In the same way, we could also list all of the unhelpful, rude and not-so-knowledgable people too, and then we could all avoid dealing with them.

There are still a few people at the IR who fit the first criteria, not many I know, but I have come accross one or two recently.

I would be happy to share the details of my good "contacts", would everyone else? And would we be allowed to do this?

If it worked it wouldn't take long for the revenue to actually "see" who is rubbish - they'd be the ones with no phone calls or correspondance to deal with! Then they could simply get rid of the dead wood, give pay rises to the good ones, and maybe, just maybe, relations between accountants & the revenue could be improved!

Brilliant!!

...but as in any QUANGO, the good guys will be even more overworked than ever & leave/retire even earlier.

The deadwood would be allowed to draw its salary, whilst sitting around doing nothing.

It might help us, but as usual, the jobsworths would be rewarded.