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Covid related closure was not reasonable excuse

An employer appealed against penalties imposed for late RTI returns, but the period of lateness pre-dated the pandemic, so the FTT did not accept this was a special circumstance.

13th Jan 2021
Tax Writer
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Cherwell Optical Limited [TC07852] is required to submit RTI returns as required by the Income Tax (PAYE) Regulations 2003 reg 67B, on or before making a relevant payment to an employee. Cherwell did not submit its RTI returns on time for the periods ending 5 June, 5 August, 5 September and 5 October 2019.

HMRC issued Cherwell with four penalties of £100 under FA 2009, sch 55, one for each failure to file the RTI return on time for the tax month.

Covid as a special circumstance

Cherwell initially appealed against HMRC’s decision to impose the penalties on the grounds that the company makes irregular payments to employees, one of whom is full time and one part-time/casual. It had been trading for ten years and had not previously incurred such penalties, and that the penalties placed an excessive burden on small businesses.

HMRC rejected that appeal in its review letter on 16 March 2020, just before the start of the first coronavirus lockdown on 23 March.

However, in its notice of appeal to the FTT on 14 April, Cherwell stated that it accepted HMRC’s review decision and was willing to pay the penalties, but it requested a reduction for special circumstances on the basis that the company was non-operational and in negative cash flow owing to the Covid-19 lockdown.

No reasonable excuse

There was no doubt that the four RTI returns were submitted late: HMRC’s computer records show that the RTI returns were submitted after the company’s employees were paid in each of the periods in question.

Cherwell had previously been charged penalties for the late submission of RTI returns, but HMRC had cancelled those penalties. HMRC also sent the company education letters in October 2016 and December 2017, which confirmed that the RTI return must be submitted on or before the day the employees are paid.

Following the previous defaults and the two education letters, the FTT found that Cherwell should have been aware of the correct process for submitting its RTI returns.

The FTT also pointed out that the company stated in its own notice of appeal that it accepted HMRC’s decision, and was willing to pay the penalties, which implied a concession from the company that it did not have a reasonable excuse. The FTT agreed and found there was no reasonable excuse.

No special circumstances

FA 2003 sch 55, para 16 gives HMRC the discretion to reduce a penalty charged under the schedule if it thinks it right to do so because of special circumstances. 

There is no exact definition of special circumstances, but paragraph 16(2) specifically excludes:

  • ability to pay; or 

  • the fact that a potential loss of revenue from one taxpayer is balanced by a potential over-payment by another

HMRC stated that a special reduction owing to the business’ closure as a result of the COVID-19 lockdown was not appropriate. This was because any consideration of special reduction should apply to the original penalties and the circumstances at the time that resulted in those failures, rather than recent events. Further, the ability to pay was specifically not a special circumstance.

The FTT may substitute HMRC’s decision on special reduction if the tribunal considers HMRC’s decision to be flawed. The FTT did not find a flaw in HMRC’s decision in this case, as it was within the range of reasonable decisions which HMRC could make.

The appeal was dismissed.


HMRC and the FTT made it clear that, while the impacts of COVID-19 did not give rise to special circumstances in this appeal, it may well be that the effects of COVID-19 could justify a special reduction in another case.

Taxpayers (including Cherwell) affected by COVID-19 and related restrictions can contact HMRC’S COVID-19 helpline either by phone on 0800 024 1222 or via webchat to discuss a possible deferment of payment.

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