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Software in testing mode scuppers CJRS claim

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An employer was forced to repay Coronavirus Job Retention Scheme (CJRS) payments due to a payroll software glitch, which had meant the company missed the relevant RTI submission deadline.

7th Jul 2023
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Raystra Healthcare Limited (RHL) operated as a care service provider and temporary employment agency for the medical sector, with Mr K Adeniji as its sole director.

In April 2020, Adeniji attempted to make a claim under the Coronavirus Job Retention Scheme (CJRS) on behalf of RHL, but was unable to complete the application. He therefore contacted HMRC who called him back a few days later and advised that RHL had not submitted a Real Time Information (RTI) return since November 2019.

Testing times

This came as a surprise to Adeniji, because he believed that RTI submissions had been made each period and the relevant PAYE and NIC paid over to HMRC. He investigated further and found that his payroll software had been updated in November 2019 and, for reasons unknown, all subsequent submissions had been made in 'test mode’.

Adeniji immediately rectified this and resubmitted the relevant returns, spanning November 2019 to April 2020. He then went on to submit the CJRS claims for six employees and later received the payments from HMRC.

Assessments

However, that was not the end of the story. HMRC issued assessments in February 2021 to recover what it felt were overclaimed CJRS payments totalling £15,170.48. This was on the basis that a prerequisite of claiming the initial CJRS payment was that the relevant employees appeared on an RTI submission made on or before 19 March 2020.

All of the employees involved had commenced their employment after November 2019, therefore none of them had appeared on an RTI submission by 19 March 2020, meaning in HMRC’s view, no CJRS payments were due to RHL.

RHL disputed the matter with HMRC, before making an appeal to the first tier tribunal (FTT). This was made outside the appeals window, however HMRC offered no objections on this front, and so the appeal was heard.

The FTT

HMRC’s argument was simple: the March 2020 deadline had not been met, as the necessary submissions had not taken place until April 2020.

Adeniji did not dispute the missed deadline, however he felt his claim should be allowed nevertheless. While the required submissions had not reached HMRC, RHL had made them from their side and, according to Adeniji, there had been no way to tell the software was in ‘test mode’. 

He felt that a compassionate approach should be adopted, given it should now be clear to HMRC that the lack of submissions was not intentional and that RHL had cooperated fully since the issue came to light. 

Finally, the CJRS amounts had been passed on to the employees and it was now no longer possible for RHL to request this back, leaving the company unfairly out of pocket.

It should be noted that in the absence of RTI returns, HMRC had been adding specified charges to RHL’s account to estimate the amounts due. Whether this had added to the confusion (given the amounts added and the payments made surely didn’t match, which should have raised alarm bells for both parties) is unclear.

Legislative wording

The FTT found that there was not a lot to consider.

The Coronavirus Act 2020 sets out the circumstances under which a CJRS payment can be claimed. These circumstances clearly state that an RTI submission must have been made for any relevant employees on or before 19 March 2020, and do not include any exceptions or relaxations of this rule.

This is in contrast to other areas within the legislation that allow for a ‘reasonable excuse’ to exist, or for special circumstances to mitigate penalties. The FTT felt that the absence of such provisions was intentional and meant that either the March 2020 deadline was met or it wasn’t, regardless of extenuating circumstances.

Whilst not bound by any of the decisions, previous FTT cases which had involved this point were considered, with none of them finding any wiggle room or exceptions.

Compassionate grounds

Finally, the FTT noted it had no discretion to allow an appeal for compassionate reasons, again noting that earlier cases had reached a similar conclusion, despite expressing sympathy for the taxpayer.

No further consideration was required and the appeal was dismissed.

Conclusion

It is surprising that the test submissions were not clearly flagged up by RHL’s software as, well, test submissions, rather than ‘live’ ones, as this is generally made very apparent to avoid outcomes such as these. 

It is also somewhat surprising to find that there is no room for extenuating circumstances in the CJRS rules, as by their nature they relate to a period where many businesses were facing unexpected situations, many of which may have led to reasonable excuses.

Replies (13)

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By Hugo Fair
07th Jul 2023 16:26

For once I fully agree with this FTT:
"The Coronavirus Act 2020 sets out the circumstances under which a CJRS payment can be claimed. These circumstances clearly state that an RTI submission must have been made for any relevant employees on or before 19 March 2020, and do not include any exceptions or relaxations of this rule."
So, end of discussion.

Whilst I know nothing of the case specifics (including which Payroll software was used), the excuse (that, for reasons unknown, all submissions had been made in 'test mode’) seems disingenuous.
Not only would 'test' (rather than 'live') mode for submissions be very explicit in all software I've used ... but by definition 'test' submissions don't flow through to HMRC's various 'live' systems, so didn't RHL notice there was nothing showing as due to pay to HMRC (or wonder about penalties for late/missing submissions).
Doesn't sound like the full story has been told here?

Thanks (1)
Replying to Hugo Fair:
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By Wanderer
09th Jul 2023 15:19

Hugo Fair wrote:

Whilst I know nothing of the case specifics (including which Payroll software was used), the excuse (that, for reasons unknown, all submissions had been made in 'test mode’) seems disingenuous.
..............
Doesn't sound like the full story has been told here?


https://www.bailii.org/uk/cases/UKFTT/TC/2023/TC08838.html
Doesn't add much to the commentary though.
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Replying to Wanderer:
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By Hugo Fair
09th Jul 2023 19:21

Thanks.

The little extra info contained at least confirms my suspicion that the Appeal was constructed upon an incomplete & inconsistent set of facts (as presented).

"There was no way that the Appellant could have known that the software was in “test” mode.
There was nothing that indicated to the Appellant that RTI returns were not being received by HMRC after 13 November 2019.
When the Appellant was thereafter notified by HMRC of specified sums that the Appellant was required to pay, there was nothing to indicate to the Appellant that these were estimated amounts rather than amounts based on RTI returns submitted by the Appellant."

Irrespective of which software was being used (and therefore whether it really was difficult to discern that submissions were being made only in 'test' mode), the Appellant appears NOT to have:
- checked for submission 'receipts' issued by HMRC;
- checked their PAYE online account for monthly transactions/balances;
- wondered why the amount they presumably paid for each month (per RTI calcs) didn't tally with what transpire to have been HMRC estimates.

Basically, every facet of the extract I've shown above indicates that the Appellant was at the very least deficient in paying due care & attention to their processes - which is the opposite of what they claimed (as innocent bystanders).

Thanks (1)
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By Hugo Fair
07th Jul 2023 19:45

Whilst I know nothing of the case specifics (including which Payroll software was used), the excuse (that, for reasons unknown, all submissions had been made in 'test mode’) seems disingenuous.
Not only would 'test' (rather than 'live') mode for submissions be very explicit in all software I've used ... but by definition 'test' submissions don't flow through to HMRC's various 'live' systems, so didn't RHL notice there was nothing showing as due to pay to HMRC (or wonder about penalties for late/missing submissions).
Doesn't sound like the full story has been told here?

Thanks (2)
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By Hugo Fair
07th Jul 2023 19:47

?

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By D V Fields
07th Jul 2023 20:13

Whilst you can feel sympathetic towards the claimant on the one hand; on the other hand my payroll reconciliations are monthly and include verification of HMRC online balances as well as those of pension providers. The checklist used has proven invaluable many times.

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Replying to D V Fields:
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By Hugo Fair
07th Jul 2023 21:15

Quite ... a briefer version of the same points made in my earlier apparently censored comment!

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Replying to Hugo Fair:
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By D V Fields
08th Jul 2023 20:55

Not sure I saw those but maybe you were just being too blunt for someone’s liking. The truth often hurts. Maybe you suggested HMRC should have made a “test” payment to them. Much like my responses to proforma invoices - here is my proforma cheque - this is what it would look like when payment is made.

I was never taught to do balance sheet reconciliations but they just seemed obvious and never trust the balance sheet until done.

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Tom Herbert
By Tom Herbert
10th Jul 2023 09:46

Just a quick rule of thumb on the 'censoring' of posts/comments. If your comment doesn't appear and one of the team hasn't contacted you to explain why, 99 times out of 100 it's down to a system glitch or our anti-spam filter getting overexcited. Drop Will, Richard or myself a line and we'll try our best to help.

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Replying to TomHerbert:
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By Hugo Fair
10th Jul 2023 13:14

As indeed I did.
And Richard kindly sorted out your over-excitable spam-filter (on a Saturday which is almost worryingly efficient!) ... it apparently had 'caught' quite a few people (not just me) after an upgrade to Sift software.

I probably shouldn't have used the word 'censor' but when it happens (every post being rejected) the on-screen feedback is worse than useless ... making it hard to tell if the problem is hardware/network related, some automated block/filter or deliberate intervention.
So I tried multiple variants which, with hindsight, just made it worse (or at least messier).

Final scores for AWeb: humans 10/10; software 2/10!

Thanks (1)
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By Arcadia
10th Jul 2023 11:42

An example of deficient drafting. There should have been a 'reasonable excuse' clause. There would be ample evidence this was a genuine claim, HMRC were even estimating the PAYE due, and so knew of the employees.

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Replying to Arcadia:
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By Hugo Fair
10th Jul 2023 13:06

Sorry, but what "ample evidence this was a genuine claim"?

And the fact that "HMRC were even estimating the PAYE due" ... is certainly evidence that HMRC were not receiving FPS files, but has *nothing* to do with them 'knowing of the new employees'!

In the absence of an FPS notifying HMRC of a new starter there is no way for them to be aware of the new employment ... and the estimate will have been based on the 'pre-existing' employees (which is yet another reason that employer should have realised what was going on).

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By Roland195
10th Jul 2023 13:41

A quick look at Any Answers from circa 2019 will show that even then, the reconciliation of PAYE between what HMRC deigns to show & whatever your own records are is usually far from conclusive so I am absolutely prepared to believe that a business could be genuinely unaware of deficiencies in it's filings, with no professional advice taken at this point (I expect it would be rectified at the year end if not earlier).

As there is a separate penalty regime that applies this (and does include provision for reasonable excuses which may exist here) it does seem incredibly harsh that the legislation (and to repeat myself - hastily drafted & subject to much back tracking & revision) is being interpreted in this narrow way.

Not exactly sure why HMRC paid the claims in the first place given this position.

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