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Should penalties be issued for RTI early filing?

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Was HMRC right to issue penalties to an employer who filed its Real Time Information returns early, and should a reasonable excuse be applied in cases where incorrect penalties have been raised?

29th Jul 2022
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Some heated discussion has been created among AccountingWEB members by Ian Holloway’s analysis of the first tier tribunal (FTT) case: Quayviews Ltd vs HMRC (TC8515). Most learned among those was a contribution from Richard Thomas, a former tax tribunal judge.

So here I will summarise Thomas’s views on why the FTT was wrong to allow the appeal on the basis that the employer had a reasonable excuse, because the penalties were not validly raised in the first place.

How the RTI regulations work

All employers are aware of the obligation to make a Real Time Information (RTI) return “on or before” the employee is paid. This is contained at regulation 67B of the Income Tax (Pay As You Earn) (Amendment) Regulations 2012 (SI 2012/822). 

However, if no salaries are paid in a month, the employer does not need to send an RTI return under regulation 67B in that month because none is required by law (regulation 67F). Thomas argues that regulation 67B is unequivocal that the obligation to make a return arises on or before a payment: if there is no payment in a month there is no obligation to file.

It is not mandatory to tell HMRC no payment was made. Regulation 67F makes it clear that the non-payment notification is optional, by stating, “A Real Time Information employer may send to HMRC a notification if: a) for a tax period, the employer was not required to make any returns in accordance with regulation 67B or 67D because no relevant payments were made during the tax period…”

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Replies (15)

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By Jane Wanless
29th Jul 2022 11:40

Employers are required to file "on or before" paying employees. Quayviews did that so I don't think they should have been penalised.
Many employers are sole-traders. Why shouldn't they be able to file in advance if they're concerned about being able to file during business trips abroad, need to plan surgery and recovery time, holidays etc? The businessman/woman has to be flexible. HMRC's systems should be too.

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Replying to janewanless:
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By Hugo Fair
29th Jul 2022 11:53

That's not the point.

FWIW, HMRC's systems *are* flexible (in this case) IF you follow their guidance.

The issue here is that their guidance (and systems) require you to do things not mandated in law.

Thanks (2)
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By Hugo Fair
29th Jul 2022 11:55

100% with you on your Conclusion ... with the possible exception of your throwaway final para:
"This is not the fault of the RTI regulations, or HMRC’s guidance, but the fault of HMRC’s RTI computer system".

It's difficult to tell with HMRC (very probably deliberately) the chicken-and-egg status of those last two components.
In other words ... sometimes HMRC's guidance follows the reality of their RTI system (which was after all specified & paid for by them) - but on other (seemingly random) occasions it's the other way round!

There are loads of examples of both scenarios ... such as the ever changing guidance regarding how to use 'payment date' in an FPS, where it has flip-flopped in an attempt to keep up with changes in their software (and, often forgotten, how the interface with other systems such as for UC change).

The origin of the dichotomy in this article's topic appears to lie in software being changed to fit their guidance (without bothering about legislative support) ... simply because it makes it easier to automate their (in this case penalty generation) processes.

I'm only wittering on because it's indicative of a topic that has been a bee in my bonnet for over 10 years ... namely where within HMRC is the responsibility for system design & specification?

In the private sector you don't stop at the point that a piece of software does 'what it was supposed to do' ... you go on (still in the design phase) to work out all the possible interactions (from user input mistakes & misunderstandings) through to interfaces with other systems & processes (in this case penalty generation).
Failing to do that is akin to designing a train system to take carriages from Kings Cross to Manchester, but not considering passengers joining/leaving at stations in between or indeed the need for the train to stop at its destination!

That piece-meal approach is all that appears to exist within HMRC as it lurches from unexpected problems to predictable crises - and is now being hard-wired into current plans for things like MTD on a foundation of 'agile' development (aka 'oh we'll decide that bit later when we get to it')!

Summary? If HMRC can't decide which of the two bits (that they are in charge of) drive the other bit, then there's little hope of them accepting that they either need both bits to be subservient to the legislation or to get the legislation changed (not just ignored).

Thanks (5)
Replying to Hugo Fair:
By SteveHa
01st Aug 2022 10:17

I have no issues with your synopsis. How about HMRC change their approach and wait for legislation to be fully drafted, and then design their systems to meet he legislative requirements, rather than design software and then try to make the legislation fit.

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By Beef curtains
29th Jul 2022 12:13

They'll penalise you for using the wrong coloured ink. bureaucratic sareholes

Thanks (4)
the sea otter
By memyself-eye
29th Jul 2022 18:42

when I was doin' this stuff I filed 3 months in advance for my own business using HMRC's basic tools.
Got a £100 fine....sorry.... penalty.
got in touch with their technical department, who confirmed there was no reason why I could not do just that. In fact they said I could file a whole year's RTI's in advance, in one go, if I wanted (minimum salary, no tax, no NI issues)
Appealed in writing.
Fine...err... penalty, withdrawn
Am now relocating to Mars/Jupiter/Saturn/ third planet on the left where some sort of sanity rules

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By Paul Crowley
29th Jul 2022 23:55

Anyone who has sufficient knowledge of the creaking RTI system knows what the issues are.
But today I had the problem of one person alone sorting the firm's RTI
She (my darling daughter) reluctantly struggled in even tho' I was happy to accept leave 'till she was properly fit and just mark the submission with a reason for being late
HMRC ALWAYS accept the reason, never seen a penalty on any client ever that we operate even with late details

No sympathy for those that predict the future
Fine the lot
Better to fine the prats that mess up the system than those who accept the deficiencies of the system and work with the system to accommodate the double use of it for UC

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Replying to Paul Crowley:
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By Calculatorboy
30th Jul 2022 21:25

Your poor daughter ... I have actively encouraged mine not to have anything to do with accountancy

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By jvenegas16
30th Jul 2022 15:45

If "fault of HMRC’s RTI computer system", who create, implement and manage that system. And equally, who tested the system and gave instructions to that system to work in the desired manner. No, HMRC is as much responsible as always.

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Chris M
By mr. mischief
30th Jul 2022 20:14

I've just had an MTD failure. That's because MTD, having accepted the 1 January 2022 to 31 March 2022 VAT fine, now expects one for 1 January 2019 to 30 June 2022.

You can't make it up how rubbish HMRC are at writing software.

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Replying to mr. mischief:
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By moneymanager
01st Aug 2022 23:17

Does HMRC write the software or are they just completely crap at
a) understanding what their hardware can cope with,
b) designing a robust and workable flowchart of the proposed system and,
c) briefing and holding to account their appointed contractors or
d) all the above?

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By Marlinman
01st Aug 2022 11:49

I often file early if I'm going to be away at the month end and not have internet access. I've had no problems so far but have never filed more than a month in advance.

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Replying to Marlinman:
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By Hugo Fair
01st Aug 2022 14:04

Filing early isn't the issue.
Filing so early that the filing takes place *before* the start of the tax month being reported is what HMRC are (wrongly) penalising.

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By jvenegas16
01st Aug 2022 14:47

You can send an FPS before your regular payday, for example if your payroll staff are going on holiday.

Do not report too early - you’ll need to send a corrected FPS to update HMRC if information changes, for example an employee leaves or changes tax code.

You cannot send reports for the new tax year before March.

https://www.gov.uk/running-payroll/reporting-to-hmrc

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By fawltybasil2575
01st Aug 2022 21:02

@ Rebecca.

Your two questions:-

(1) “Was HMRC right to issue penalties to an employer who filed its Real Time Information returns early . . . . “ (?), and

(2) “. . . .should a reasonable excuse be applied in cases where incorrect penalties have been raised?”.

My two answers:-

(1) No. The legislation does NOT entitle HMRC to issue penalties: in the Quayviews Ltd case, HMRC initially issued the penalties (probably) because of a programming error. When correct appeals were made, HMRC contended incorrectly that NO RTi submissions had been made at all re the payments made in later months (whether such HMRC contention was careless, not bothering to check their system, or mischievous in the hope of deceiving the appellant, is not known).

When the case was listed for hearing by FTT, one or more senior HMRC representatives will have self-evidently seen that an RTi submission had indeed been made; but cynically (when preparing their all-important Statement of Case for the FTT) they compounded their duplicity by STILL contending that no RTi submission had been made AT ALL.

Then came the FTT case itself (albeit HMRC had every opportunity, prior to the FTT hearing, to admit its duplicity and withdraw "with its tail between its legs"). But, instead of acting honourably by such withdrawal, they abandoned their untrue contention that no RTi submission had been made, and instead concocted the “[***] and bull story” that the RTi submission had been made but that it was TOO EARLY (mischievously interpreting the legislation which it knew did not support its new contention).

Instead of appointing an HMRC representative with adequate knowledge of the case, to represent HMRC at the FTT, HMRC (continuing its “win at all costs” policy) appointed an HMRC officer with negligible knowledge of the case, and unaware of the HMRC conduct throughout, who therefore could not be criticised by the FTT – the FTT made a point of exonerating the HMRC from blame - frankly IMHO, the FTT should have reprimanded HMRC for its tactics).

Unfortunately, the FTT “swallowed” the HMRC’s new (bizarre) contention (and appears not to have studied a correct analysis of the legislation). The appellant had (understandably) submitted an appeal on the grounds of reasonable excuse. This “reasonable excuse” argument found favour with the FTT, and hence the appeal was successful – in short, therefore, the FTT “got the right answer for the wrong reason”.

The "reasonable excuse" grounds incidentally were that the GOV.UK guidance did NOT support the view that an RTi submission had to be made in the same month as the pay dates; and the FTT thus advised HMRC to “correct” its guidance. Unless HMRC continue their duplicity, by acceding to this (inappropriate) request by FTT, the guidance will REMAIN correct, and very rightly so (that said, the guidance could be IMPROVED by confirming that an RTI submission in a month prior to the month of payment, is perfectly in order).

In may ways I wish the FTT had rejected the appellant’s “reasonable excuse” claim and rejected the appeal, since (hopefully) escalating the matter to the Upper Tribunal would have resulted in the correct finding that the penalties had been improperly imposed by HMRC.

(2) This, with all due respect, is a strange question – the only correct answer is of course “No”, since making a “reasonable excuse” plea is tantamount to admitting that the penalties WERE imposed correctly, which in this case they were NOT.

In short this is a harrowing account of the depths to which HMRC will plummet (several times over) in order to “win a case” – it makes a mockery of the “Charter”, which purports to convince us that HMRC will always act honourably.

I have made the same points (with at times similar acidity, as above, in one or more threads in “Any Answers”).

Basil.

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