The facts currently unfolding are that technically we had not submitted a clients P35by the deadline and there is therefore a valid late filing penalty.
In short a wrong PAYE reference was used (the client had incorporated) and the previous partnership PAYE reference was used rather than the new limited company reference.
All paye/nic was paid on time. The result being that HMRC had a P35 with no payments on the old partnership reference and 12 payments but no P35 on the new limited company reference.
No underpayment notices were ever issued on the partnership or over payment references on the limited company.
When we became aware of the use of the wrong reference we wrote to HMRC informing them of the error, in any case because of the absence of the under/over payment notices we were pretty sure that they had already matched the P35 and funds (the names of the partnership and limited company were almost identical, same district etc, which would have helped)
So HMRC had a return by the due date (wrong reference) all the tax was paid on time, HMRC have lost nothing.
Despite this we are left with a large penalty, we have appealed , it has been rejected , we are now faced with dealing with of first , first tribunal appeal.
We have researched potential grounds for appeal but are coming up short, reasonable excuse, does not seem to cover it, the tribunal it appears can not take proportionality (size of the fine compared to HMRC loss) into account so I am left with perhaps the principle of Equitable Liability (although I am not sure that I can see a lot of difference from proportionality) which I understand has been saved from the ESC bonfire and will be put into statute in due course
If anyone has any experience of a successful appeal against a fixed PAYE late P35 penalty, any information would be appreciated.
Replies (16)
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PAYE penalty
Hi Ron
My situation is a llittle different to yours, P35 didn't get filed and 4 months later we received a £400 penalty. I wrote explaining why it hadn't been filed and then went on to say that although the initial error was ours they knew it hadn't been filed but chose not to inform us thereby increasing the penalty unfairly. At best I thought they might reduce to £100 but they wrote back to say the penalty was removed. It was a great relief.
Step it up a level
We had a similar case where the previous agent had completed the P35 with the wrong reference.
We called the HMRC who advised us that so long as we completed and submitted the correct P35 and P14's for the correct entity AND completed a negative(!)P35 and P14's for the other reference they understood what had happened.
So back to the HMRC for forms..
Regards Richard
The requirement under the Regulations
is for the "employer" to deliver a return containing the relevant information, which has been done, albeit with an incorrect reference. Presumably there are employment contracts which demonstrate who is the employer; the partnership perhaps no longer exists, and therefore cannot be the employer; the P35 was perhaps signed by someone acting in the capacity of "director"; ie facts demonstrate that the employer did indeed deliver the return.
You've done your bit
The fact remains that you delivered a return showing all the required information, i.e. employee details, paye/nic etc., - the only flaw is the reference number. You've done your bit and you should be successful eventually under the appeal procedure. The law requires a return to be made - you've done it! I've had this kind of problem with partnership returns when an old reference has been used for a re-started partnership with a different trade after a break, and eventually they had to accept that the return had been submitted, albeit with a wrong reference. Keep on at them and take it as high as necessary - sooner or late they'll back down because they have no legal right to enforce the penalties.
P35 penalties
If you do have to go down the tribunal route you can at least argue the case that HMRC knew the P35 was late as soon as the deadline passed and have been sitting on this knowledge for months in order to build up the penalty from £100. I have never yet had HMRC argue with this and so have only ever had a client pay £100 whenever I was unable to have it reduced to nil.
P35 penalties
Further to my reply post a day or so ago I have just received a letter from HMRC discharging penalties where we submitted the P35 under the wrong reference - precisely the issue that you have. Proves the ofice you are d/w are being sticklers unnecessarily.
Tribunal appeal
It will be a "default paper" case before the Tribunal. That means that the case will be decided on the papers unless you ask for a hearing. Default paper decisions are not published, but there has been at least one in the taxpayers favour in similar circumstances.
The three key elements of a reasonable excuse appeal are (1) was going to comply (2) was prevented by circumstances beyond the taxpayers control and (3) put right as soon as reasonably practical. In the case I know of, the Tribunal decided that (1) and (2) were satisfied because the taxpayer had a justifiable belief that he had complied.
Remember the Judge will only see the papers you supply and HMRC response. Make sure that the documents that you attach to your notice to the Tribunal sets out your case fully and clearly, with supporting documents.
HMRC reverses an earlier decisions.
It would appear she may have belived the tribunal would have reversed her earlier decision, maybe with an adverse comment.
Alternatively pushing as hard as possible to see how far you would go so they get some "free" money.
Charlatans they are at times
Her boss
I bet her boss saw it and gave her a bollocking cos he knew it would be thrown out or reduced to £100.
P35 penalty
I had the same problem as Caractacus Potts in previous years with two or three clients with the same outcome. I am now dealing with an identical case and HMRC will not back down. So they are treating this client in a different way to other clients. I cannot see any legal grounds to continue the appeal. I have thought above the Taxpayers Charter and treating taxpayers "even handed" but I do not think I can get that to stick either. Anyone else noticed a change of approach recently from HMRC on P35 penalties?
P35 Late Penalties
Please all be very careful, last year 2010 we were in a very stressful position of closing one branch down and trying to run another, we are a small business with under 10 employees. End of April 2010 my year end came and went and thought I had submitted online but was very busy and forgot to look for the "email" so on 24 December I left off work and there in the post was a reminder that I had not submitted my P35 and a fine of £400. I was so shocked I went straight online and it was true I hadn't submitted it, urghhhh! The information was all there but obviously it hadn't gone, so I submitted straight away and looked for the email, printed it off and filed it until after Christmas (the date on the statement/reminder was 7 December). I appealed and appealed and have just had the reply and guess what the fine is now £800.00 great! Am not sure what to do at the moment have been in touch with several people and they suggest I pay it and then carry on appealing, that kind of defeats the object. I tried to suggest that maybe they should send the statements out earlier which maybe was the wrong thing to say but there answer is by September they start the reminders and from September to December the fine is £400.00 but as I appealed they have backdated it to May which is £800.00 there is no warning that this will happen and feel very disappointed. Will probably go to my MP maybe even the papers not sure yet but I held my hands up and said that it was totally my fault I didn't look for the "email". We are just numbers and I know there are rules but I feel this is a very unfair tax. Any help would be hugely appreciated.
Have appeallead again so we shall have to wait and see.
Late Filing of P35 Penalties
It would appear that the failure by HMRC to inform companies of non receipt of P35's is system set up to raise income, which was the decision reached in a recent tribunal ( TC01286, Hok Ltd) and the fine was reduced to £100, See below
In a potentially wide-ranging case, HMRC have been criticised for deliberately issuing penalties for late forms P35 (Payroll end of year forms) several months late, which generated more penalties than were necessary. A summary of the case is reported below.
This case has potentially wide ranging implications for other employers. Please do get in touch if you would like further guidance in this area.
The case (TC01286: Hok Ltd) concerned an appeal against a penalty of £400 for late filing of the 2009/10 P35. The penalty was calculated at £100 per month for four months. In October 2010 a further penalty of £100 was issued, given that the filing had taken place on the 15 October 2010 once the company had been alerted to its default.
The company argued that it thought it did not need to file the appropriate returns because its only employee had ceased employment part way through the year. It acknowledged that it was wrong and that HMRC was entitled to levy a penalty. However, the company argued that, if HMRC had notified it of its default, it would have been remedied it a far earlier time, thus avoiding ongoing penalties.
During the Tribunal HMRC stated that it runs a:
'…structured programme to enable penalties to be issued regularly throughout the year, rather than waiting for the late return to be submitted and then issue a final penalty. These penalties, although aimed at encouraging compliance and having the effect of reminding are not designed to be reminders for the outstanding return.'
The Tribunal was amazed by this and stated that:
'….HMRC deliberately waits until four months have gone by and does not issue the first interim penalty notice until, as in this case, September of the year of default.'
'There can be no logical reason whatsoever for HMRC to delay sending out a penalty notice for four months so that, in effect, a minimum penalty of £500 will be levied unless the taxpayer has unilaterally realised that it has failed to undertake the necessary filing.'
'In our judgement it would be a very simple matter for HMRC to set its computer settings so that a default or penalty notice was sent out immediately after the 19 May in any year, instead of some four months later. That might generate less penalty cash for the State, but it would be fair and conscionable as between the taxpayer and the State (acting by HMRC).'
'As, in our judgement, HMRC has neither acted fairly nor in good conscience, in the manner described above, we do not consider that any penalty is recoverable over and above the £100 penalty for the first month unless HMRC proves (the onus being upon it) that even if such a penalty notice, which would have acted as a reminder, had been issued, the default would nonetheless have continued. It has proved no such thing.'