Kate Upcraft reports on the second published case concerning RTI late filing penalties, which has found the penalties were invalid and has news of the demise of the EYU.
Judge Thomas rules
All RTI penalties are supposed to be risk-assessed by an HMRC officer, rather than issued by computer as an automatic process, so it is surprising that the case of Vasco Properties Ltd v HMRC  UKFTT 653 got as far as the tribunal.
The tribunal team at HMRC must have known their chances of winning were slim, especially when they realised that Judge Thomas was presiding over the case. Judge Thomas ruled in the first published case on RTI late filing penalties (J & L Benson Building Services Ltd TC06546), which was lost by HMRC due to poor and inappropriate documentation.
A particular source of embarrassment in this latest case was that the RTI returns in question had been submitted by the employer using the HMRC’s own PAYE filing software Basic PAYE Tools (BPT).
The employer contended that they had submitted figures during 2017/18 and had done exactly the same in 2016/17 using BPT with no queries whatsoever from HMRC. The Judge surmised that the 2017/18 upgrade to the BPT may have been the root cause.
The first penalty was generated for the first quarter of 2017/18, but this was cancelled by HMRC and an ‘educational letter’ was sent to the employer. Three returns for the months to 5 November 2017, December 2017 and January 2018 were deemed late, but the first late one for the year is not penalised.
In lodging their appeal, the employer attached significant evidence to show that submissions had been made and received by HMRC. Also, the employer’s accountant had tried several times to contact the HMRC employer helpline about the matter but had given up because the waiting times were too long.
In his case report Judge Thomas makes mention of 82 documents, the majority of which appear to have been submitted by the employer to HMRC to contest the penalty. Despite this, the late filing penalties totalling £200 were upheld on review.
Judge Thomas cancelled the penalties on the basis of the evidence from the employer provided by Basic PAYE Tools. He did accept HMRC’s contention that no reasonable excuse had been put forward, but simply dismissed that by saying that the employer was not required to put forward a reasonable excuse because they had done nothing that needed excusing!
HMRC, said Judge Thomas, needed to stop issuing stock letters about returns not received and start investigating whether there were IT issues at play. This advice could be applied to a lot of compliance activity around RTI, as HMRC continue to focus on outcomes rather than root causes.
In December 2014, HMRC promised it would review the design of the Earlier Year Update (EYU) used by employers to correct a prior year’s PAYE figures after 19 April, which is the deadline for making corrections using the Full Payment Submission (FPS).
The EYU is also requested extensively by HMRC staff when they are trying to correct the figures that have been corrupted by their systems on receipt from the employer, back to the original submission made by the employer.
The problem with the EYU is that it was an afterthought when RTI was being designed, so they simply reincarnated internal HMRC functionality that had existed prior to RTI for correcting P14s. In those pre-digital days, employers submitted a new paper P14 indicating plus/minus values to correct the previously submitted figures. Carrying forward the use of so-called ‘delta values’ into the digital world was problematic.
Payroll software is designed simply to provide new figures that overwrite previous figures, not to provide adjustments. For this reason, some payroll software providers chose not to offer the EYU within their products, insisting that if clients wanted to amend figures that this should be done via the BPT.
Hello YTD FPS
Roll on four years to November 2018, HMRC announced that from April 2019 it would introduce a new option of providing a year to date full payment submission (YTD FPS) after 19 April 2019. This will be able to simply overwrite the year-end figures for an employee (or employees) with the corrected values.
The new YTD FPS will run in parallel with the EYU for the 2019/20 tax year so that either mechanism can be used to amend 2018/19. This parallel running is cautionary in case payroll software providers can’t introduce the YTD FPS by the start of the new tax year.
Basic PAYE Tools will only offer the EYU for 2019/20, but from 2020/21 the EYU will be formally abolished for correcting 2019/20 and beyond. The EYU will still be in use for correcting 2018/19 and prior years.
About Kate Upcraft
Kate is a technical writer, editor and lecturer on all aspects of employing people - primarily payroll and HR matters.