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HMRC relents on multiple P35 penalties

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19th Mar 2012
Partner Rebecca Benneyworth Training Consultants
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HMRC has agreed a new approach to PAYE late filing penalties with professional tax bodies to lessen the number of companies receiving notices for £400+ fines in September each year.

As part of its initiative to improve service standards, the tax department worked with the bodies to tackle some of the most aggravating issues, one of which was the way companies were hit by hefty fines out of the blue. When the new joint working group got started in autumn of 2011, the P35 penalty problem was identified as a major issue that needed early resolution. The group tabled this to be resolved before the end of March 2012.

The issue became increasingly acute when tribunals started dismissing penalty levies where the judges thought HMRC’s approach amounts to revenue-raising rather than enforcing the deadline, as documented during the past year in AccountingWEB’s Reasonable Excuse scorecard. Judge Geraint Jones effectively brought the credibility of the penalty system into question with his ruling in HOK v HMRC, a decision which has subsequently been followed by other tribunal chairs. HMRC appealed Hok, but essentially Judge Jones had ruled that the penalty system was unfair in seeking a £400 penalty at the first point. Employers were not able to rectify their mistake when the penalty was £100, which the Judge ruled unfair.

To encourage employers to comply with the 19 May PAYE filing deadline, Taxation reported a statement from HMRC and the tax bodies this morning which said it will undertake to:

  • Change the notification date for 2011/12 P35 annual returns from mid-February to mid-March 2012, so that employers will receive it much nearer to the end of the tax year.
  • Annual return reminders will be sent out from 28 April 2012, where HMRC thinks there are outstanding P35s for the year.
  • From 31 May 2012, HMRC will introduce a “P35 Interim Penalty Letter” that will go to employers within a month of the filing deadline. The letter will tell employers they have incurred a late return penalty and explain what to do to avoid it increasing.
  • Improve online guidance for submitting P35s online, including specific advice about the test-in-live service to reduce the number of employers who believe their test submission is the live submission. “The on-screen messages within the HMRC online product will also make it much clearer that even when a successful test transmission has been made, a live transmission is still required.”
  • Instruct Employer Helpline staff to tell employers about filing dates when setting up new employer schemes, to help them avoid a penalty.
  • For next year, improve the information on the P35 and the reminders to include a warning that the first penalty notice will cover four months.

“Taken together, these measures should help employers to avoid incurring unnecessary penalties and significantly reduce the number of cases where penalties in excess of £100 are charged,” HMRC said.

Today’s announcement of what this “work around” to deal with the P35 penalty issue is a real feather in the cap for the Joint Working group between the professional bodies, tax charities and senior HMRC management. 

The problem arises because HMRC is unable to be absolutely certain which employers have failed to file their P35s before the final update of the files on computer which happens around mid-September. This led to many employers receiving penalty notices in September showing a penalty of £400 or £500 because the penalty accrues at a minimum rate of £100 per month from 19 May.

Employers appealed against these penalties in their hundreds in 2011, and other issues came to light in the appeal process. Many believed that they had filed successfully online because the receipt message did not make it clear that a “test” return had been filed, and therefore the employer needed to re-file in “live” mode.

The joint working group spent time trying to resolve this issue for 2011/12 returns, and a great deal of behind the scenes work has gone into coming up with a solution. Although official penalty notices will still not be issued until September, the measures announced today address the main issues and try to ensure that employers have every opportunity to sort the issue out while the penalty is still £100.

Employers and their agents have every reason to welcome the announcement, not only for resolving the issue, but as a sign of more to come from the joint service quality working group.

Replies (27)

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By pauljohnston
19th Mar 2012 11:42

can someone please explain

why HMRC can not advise those whom it expected  should have submitted a P 35 by the filing date that no submission has not been received within a few weeks of the deadline.  I accept that for those whom HMRC are not aware are running a payroll take longer.

 

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By P&G
19th Mar 2012 11:42

No work done between May and September?

Can someone please explain why it still takes HMRC until September to update their PAYE files to determine penalties? What happens to the online filing of P35s we are all obliged to complete? Do they just go to a holding files? If so what is the point of online filing at all?

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David Ross
By davidross
19th Mar 2012 11:44

Let us hope that the Nil Returns are properly processed

ALL the problems I have had have been where we used the structured email to file a Nil Return, and got an email confirmation of them. I now know from the above report that a reconciliation takes place in September, (and the evidence of the second tranche of £400 demands shows that there is a second review). My Nil Returns have not just been entered late, they cannot have been entered at all!

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Should Be Working ... not playing with the car
By should_be_working
19th Mar 2012 11:48

Thinking ahead

"Annual return reminders will be sent out from 28 April 2012, where HMRC thinks there are outstanding P35s for the year."

Given the state of HMRC's postal systems, won't this mean that they'll have to start printing these about ... now?

 

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Tom McClelland
By TomMcClelland
19th Mar 2012 11:52

Test and Live submission emails
Improve online guidance for submitting P35s online, including specific advice about the test-in-live service to reduce the number of employers who believe their test submission is the live submission. “The on-screen messages within the HMRC online product will also make it much clearer that even when a successful test transmission has been made, a live transmission is still required.”

 

But it sounds as if they're still persisting with the crazy identical emails that they respond with to test and live submissions. So that a cursory glance at the email makes users think they've filed successfully. Hidden away down the text is a message to the effect that, "If this was a test transmission, remember you still need to send your actual Employer Annual Return using the live transmission in order for it to be processed."

 

"The problem arises because HMRC is unable to be absolutely certain which employers have failed to file their P35s before the final update of the files on computer which happens around mid-September. This led to many employers receiving penalty notices in September showing a penalty of £400 or £500 because the penalty accrues at a minimum rate of £100 per month from 19 May."

It ought to beggar belief that they can't tell on the morning of the 20th May who has filed and who hasn't. Are they really claiming that their systems are that poor? What is this September "Final Update" of which they speak? Sounds like some irrelevant internal process of theirs was dominating their external dealings with employers (or it is just an excuse for delay).

 

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By Ermintrude
20th Mar 2012 13:06

HMRC's own CD Basic PAYE Tools

I'm still waiting to hear from my Accounts Manager regarding my issue - where I filed a P35 from this CD.  No option, request or suggestion was made from either the software itself or the confirmation email from HMRC that this was anything other than a live submission.  Nothing until the standard £400 penalty notice came through.  HMRC appeals process stubbornly insisting that my subsequent appeal was "unsuccessful", and failing to address the points within my appeal.

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By Suzanneg
19th Mar 2012 12:20

JWG

Well done to the joint working group for at least making some headway on this.

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By Pradip Shah_1
19th Mar 2012 12:21

P35 NIL RETURNS

The Revenue should allow the filing of Nil Returns using either their own software or 3rd Party Software. Using 3rd Party Software provides the user with a Confirmation that the P35 has been submitted, however notifying the HMRC of a Nil Return via email does not provide the confirmation till late August / September, by which time it is too late to resubmit if an error has taken place. I think that the Professional Bodies should take this on board.

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By Moonbeam
19th Mar 2012 12:26

Testing, Testing

As I file all my returns using Sage Payroll, I don't have the option of a "test" transmission.

I don't understand why it is allowable in any circumstances to make a test transmission, and can only conclude that HMRC have not set up their own systems properly to begin with.

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By adoggett
19th Mar 2012 12:26

P35 penalties

These penalties have always been unfair and inequitable - we always try and ensure that all returns are filed on time.. but there will always be one or two which are not filed for various reasons.. I can understand a deliberate or careless late submission being fined - but to fine a company £400 or £900 for accidental error has always appeared strange.. and for a small company one has to consider closing the company, and re-starting with a new company. I always thought it was part of government policy to kill off small companies.

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By p.seligman
21st Mar 2012 12:44

Online confirmation message

We file all our P35's using 3rd party payroll bureau software but we have clients who file using HMRC Online.  The working party has made great progress but one of the main issues for incurring a penalty is when a submission is treated as a test filing but the client thinks it was a live submission.  I cannot understand why the response email cannot make it clear.  Completely separate responses should be issued by HMRC if the P35 submission is a test submission compared to a successful filing.  I am currently appealing a case to First Tier Tribunal on this point.  Yes I know there have been successful appeals on the very same point but HMRC and at Internal Review stage do not appear to be aware of this!!

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Replying to RichBatoul:
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By Ermintrude
20th Mar 2012 13:10

@ p.seligman

Will you post when you get a response to your appeal?

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Replying to Zizo15:
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By p.seligman
21st Mar 2012 12:48

Will do - actually chased Tribunal yesterday as no response since 23 Feb.  They emailed a reply "I have passed the file onto my colleague and can confirm that this will be actioned shortly and a response forwarded for your attention."

So we shall have to wait and see!

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By Sara Graff
19th Mar 2012 12:30

P35 filing

 Where we have clients that cease employing anyone during the tax year, we close down the PAYE schemes and file P35s before the year end.  Unfortunately, HMRC cannot access the files until after the end of the financial year, and so in the meantime send our client requests to file P35s (even though they have already been filed)

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By mjwilk
19th Mar 2012 12:57

P35 penalties

I endeavoured to file for one client on 4th April last and the software didn't allow me to do so.  The routine of the software prints out an employer's copy of the P35 prior to filing and I had this in my records.  About 14 days later I filed returns for my other clients and, seeing the copy P35 for the first client, thought I had completed that.  I forgot that it hadn't gone through.  Stupid I know and I would happily have paid a £100 for my forgetfulness.  When a demand for £400 came through I paid £100 and appealed against the penalty, taking the stance that was agreed by the judge in the HOK case, although at the time HOK had not come to light.  My appeal is now on the back burner pending HMRC's appeal against HOK.  In view of their decision to be more reasonable in the future, I hope they have the good grace to remove the excessive penalties for 2010/11.

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By ds
19th Mar 2012 15:58

late penalties are they legal ?

It seems the HMRC computer systems and applications are somewhat of a "work in progress" with the humble tax payers being the unpaid guinea pigs, herded to test and niggle out the bugs. If this is the case we should consider "charging them" for our time and inconvenience in dealing with their systems beta testing which would at least negate the "penalties" levied.

As for these "penalties" which are similar to "fines", I understood that it was only law courts who could impose them. Are they legal and enforceable or similar to library book late return fines which I doubt have ever been referred to a court of law for collection. What happens if we don't pay these "penalties" and object and reject them at every stage and insist on a court case to decide on the legalities? Would HMRC fight it or back down? I am interested to hear from those with experience? With unpaid library fees the only downside is that they won't lend you any more books until you pay up, pity a similar principle isn't applied to tax.

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By thomas34
20th Mar 2012 12:46

Another Racket Quashed

Taxpayers have Geraint Jones to thank for this change of policy and other tribunal chairmen who have followed his lead. HMRC may try to put a spin on proceedings by crediting the working group for the change, but the days of this particular form of racketeering were numbered anyway. I certainly wouldn't award a feather in the cap for any organisation practising such an iniquitous policy.

 

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By craigbisby1
20th Mar 2012 12:52

Real Time

Why can't HMRC run the PAYE system based on the same software that runs Self Assessment? Surely in this day and age we should have everything in real time.

Or am I being abit unreal?

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By Ermintrude
20th Mar 2012 13:14

Test Submission - what IS the point?

I agree totally with jonbryce and Moonbeam - what IS the point of a test submission? 

"Ooo, its going to work! Hurrah!  Now I'll do the identical thing all over again!"

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Euan's picture
By Euan MacLennan
20th Mar 2012 13:54

Another unfulfilled promise

"... a statement from HMRC and the tax bodies this morning which said it will undertake to:

Change the notification date for 2011/12 P35 annual returns from mid-February to mid-March 2012,"

It is now the 20th March and we have not received a single 2011/12 P35 Notice online or otherwise.  Does anyone expect "from 28 April 2012" and "From 31 May 2012" to mean anything other than mid-September as usual?

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By [email protected]
21st Mar 2012 06:52

PAYE, VAT AND CORPORATION TAX LOSSES

 

PAYE return 2011 filed on-line April 2011 and VAT returns same in February, May, August and September 2011. Penalised for not filing return in April 2011 and recently, even though filed on-line again. Both PAYE and VAT was due to my company, which was dissolved in January 2012. One of confirmations was lost due my  computer crashing. Can the VAT refund be set off against the 2012 final PAYE return? Am I personally liable to pay the debt for PAYE which was owed by my now dissolved limited company?

Can I bill or transfer the company's losses to my business that I am running as a sole proprietor? I will soon be billing and suing an ex creditor of the company that caused the losses to happen.

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By [email protected]
21st Mar 2012 06:55

PAYE, VAT AND CORPORATION TAX LOSSES

 

 

PAYE return 2011 filed on-line April 2011 and VAT returns same in February, May, August and September 2011. Penalised for not filing return in April 2011 and recently, even though filed on-line again. Both PAYE and VAT was due to my company, which was dissolved in January 2012. One of confirmations was lost due my  computer crashing. Can the VAT refund be set off against the 2012 final PAYE return? Am I personally liable to pay the debt for PAYE which was owed by my now dissolved limited company?

Can I bill or transfer the company's losses to my business that I am running as a sole proprietor? I will soon be billing and suing an ex creditor of the company that caused the losses to happen.

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Replying to Financial Eagle:
By [email protected]
23rd Mar 2012 19:21

SUGAR

<a href="mailto:[email protected]">[email protected]</a> wrote:

 

 

PAYE return 2011 filed on-line April 2011 and VAT returns same in February, May, August and September 2011. Penalised for not filing return in April 2011 and recently, even though filed on-line again. Both PAYE and VAT was due to my company, which was dissolved in January 2012. One of confirmations was lost due my  computer crashing. Can the VAT refund be set off against the 2012 final PAYE return? Am I personally liable to pay the debt for PAYE which was owed by my now dissolved limited company?

Can I bill or transfer the company's losses to my business that I am running as a sole proprietor? I will soon be billing and suing an ex creditor of the company that caused the losses to happen.

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By Ermintrude
21st Mar 2012 16:13

Test Submission

Firstly - thanks to p.seligman - I'm keen to know how it goes for you.

 

Secondly - has anyone had the message on filing VAT returns online through 3rd party software (QuickBooks 2010):- "Thank you for sending in the online VAT submission to the 'TEST IN LIVE' service.  The submission......was successful and would have been processed if sent under non-test conditions".

Again, the VAT returns were actually filed as live submissions, there being no option to select as test or final filing. 

But also, processed by HMRC as a live submission, despite what the confirmation email states.

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By p.seligman
22nd Mar 2012 16:45

Victory

Client has received a letter today (I presume my agent's copy is in the post!) from the Internal Review unit in Belfast who have reconsidered their previous Internal Review decision and discharged the £500 penalty. 

I was not aware they could review their own decision, but at last common sense prevails.  I have been robbed of what would no doubt have been another successful victory at the Tribunal.  It is clear that someone has seen sense at HMRC and not wanted yet another Tribunal defeat. Such a shame so much time has been wasted and that Longbenton did not waive the penalty on the first appeal.

HMRC need to sort out their email acknowledgements so clients can clearly be aware if the transmission was a live one or a test.

ps I wonder if they have told the Tribunal clerk!!!

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By Ermintrude
23rd Mar 2012 12:53

Excellent news!

Well done p.seligman!  Thanks for letting us know.  I'll post when I get any response to my appeal for my client.  If unsuccessful, I will refer to your issue and result.

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By p.seligman
26th Mar 2012 16:13

Penalties for everyone

Received a paper year end notice from HMRC for a client this morning titled "Finishing the old tax year 2011-12".

It states "You must send us your Employer Annual Returns forms by 19 May 2011".

It then goes on to say "file your return on time to avoid penalties."

"by 19 May 2011" - Making the whole nation late must be the new HMRC way of generating penalties - or can we claim reasonable excuse.  Or can HMRC claim reasonable excuse for a typo.  If only the same leeway was given to us poor agents if we get something wrong.

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