HMRC penalised director instead of company
The first tier tribunal overturned the late filing penalties of a sole director for three reasons: the wrong taxpayer was named, HMRC misapplied the law, and she had a reasonable excuse.
Angela Salazar [TC07398] was the sole director of Spanish and Coffee Limited (S&C Ltd) which contained a language teaching business within a cafe.
HMRC determined that an employment intermediary return fell due under Regulations 84E and 84F of the Income Tax (Pay As You Earn) Regulations 2003. Such returns require certain intermediaries to provide HMRC with details of the workers they supply and the payments made to such workers where PAYE has not been operated.
The intermediary return for the period 6 April to 5 July 2016 was due on 5 August 2016 but it was filed late, on 5 October 2016.
Consequently, HMRC issued a late filing penalty of £250 under TMA1970 s 98, and Salazar appealed to the first tier tribunal (FTT).
Confusion over who the penalty was against
The FTT noted that HMRC had been inconsistent in who it had levied the penalty against, with both Salazar and S&C Ltd named at varying points. As HMRC’s amended statement of case listed Salazar as the appellant, the FTT proceeded on the basis that the penalties were issued to her.
The FTT found that Salazar was not an employment intermediary and had only acted as agent for S&C Limited during the period in question, not as the principal. As such, she could not be considered a specified employment intermediary and was not liable to submit an employment intermediary return.
The FTT also considered whether HMRC’s penalty could still stand by virtue of TMA 1970, s 114 (Want of form or errors not to invalidate assessments). However, the FTT found that HMRC had misled the taxpayer by providing conflicting indications as to who was liable for the penalty, and so s 114 could not be applied in this case.
Consequently, the taxpayer’s appeal was allowed.
Procedural requirements not followed
The FTT went on, as a matter of public interest, to look at whether HMRC had complied with the requirements of TMA 1970 in charging the penalty.
HMRC was also found to have fallen short in this regard.
Specifically, the FTT determined that a human HMRC officer must assess penalties under TMA 1970, s 100. The FTT found, on a balance of probabilities, that this had not happened and so the taxpayer’s appeal would have also been successful on this basis. As this case was heard before 31 October 2019 the retrospective change in the law relating to automatic penalties does not affect it.
FTT also considered whether the penalty could be vacated on the grounds of reasonable excuse, which was a key feature in the taxpayer’s statement of case.
Salazar presented several arguments, including the fact that the quarterly employment intermediary report was, at the time, a new requirement for relevant companies (coming in effect from 6 April 2016) and that she had not received any communications from HMRC that informed her of the new legislation.
However, the FTT boiled down the taxpayer’s claim to reasonable excuse to reliance on her accountant. When Salazar started S&C Ltd, she hired a certified accountant to take care of her accounting and related HMRC reporting obligations.
That accountant had given birth to a child who had a life-threatening heart condition, which required open-heart surgery. Salazar believed that, due to the stress and distraction of the child’s heart condition, her accountant failed to notify her of and submit the employment intermediary return on time.
HMRC contended that, should a taxpayer rely on an accountant to prepare and file a return on time and the accountant fails to do so, the taxpayer should be responsible for that failing, and that “ignorance of the law is no excuse” as to the (then) new requirement to file an employment intermediary return.
The FTT, referencing the UT decision in Perrin, among other cases, concluded that it was reasonable for Salazar to rely on her accountant to attend to compliance matters on her behalf. It was also reasonable for the taxpayer to continue the accountant’s appointment, and that what had happened in this instance was an honest oversight on the part of the accountant, which the taxpayer should not be held liable for.
While HMRC was within its rights to apply a penalty for the late filing of the employment intermediary return, questions could be asked as to why it chose to pursue said penalty. After all, the taxpayer’s accountant had a very sick child and, by the FTT’s determination, had committed nothing more than an honest mistake by filing the report late.
This seeming lack of compassion on the part of HMRC has not gone unnoticed, with tax barrister Keith Gordon also taking issue with how HMRC handled matters in this case.