HMRC has confirmed that it is preparing an appeal against the first tier tax tribunal decision in HOK v HMRC, in which the judge criticised the department for unfairness and using the penalty system as a “cash generating scheme”.
HOK Ltd v HMRC  UKFTT 433 (TC01286) is one of several cases last year in which tribunal judge Geraint Jones QC overturned late P35 filing penalties because HMRC waited several months before sending out notices. The HMD Response decision, detailed in AccountingWEB’s Reasonable Excuse scorecard, includes an identical conclusion from the judge: “In our judgement, the appellant is entitled to rely upon the common law duty of a public body to act fairly not just in its decision-making process but also in administering its statutory powers. We are in no doubt that such a body does not act fairly where it deliberately desists from sending a penalty notice, for four months or more, knowing that the effect will be to impose a minimum penalty of £500 upon somebody whose sin may be no more than oversight or forgetfulness.”
As part of the ruling, the judge commented that it would be a simple matter for HMRC to program its computers to send out P35 penalty notices in May rather than September to avoid the fines piling up as they did in the HOK case.
This view - and the string of similar decisions from Jones and other tribunal judges - was not popular with HMRC, which described the arguments as “out of kilter” with the law.
“It’s no secret that we are preparing an appeal and the HOK decision was the most appropriate case,” an HMRC spokesman told AccountingWEB.
ICAS tax director Derek Allen highlighted the recent decisions in Working Together issue 46 and urged HMRC to adopt a process that respects the tribunals’ stance to ensure taxpayers’ human rights are protected.
In reply, however, HMRC director of central policy Sue Walton argued that HMRC does not treat late filing penalties as a money-making exercise. “Our aim is to minimise the number of cases in which penalties arise,” she wrote.
“Nor does HMRC deliberately hold back from issuing penalties or reminders in order to charge greater penalties. The reason why we do not issue penalties immediately when a P35 return seems to be late is to allow a reasonable period for employers to tell us they have no return to make. This avoids penalties being issued to those who didn’t need to operate PAYE in the year concerned, but who didn’t let us know until after the deadline.”
HMRC has no specific responsibility to remind people to put in their returns or when a trigger point for a penalty may be imminent, she added, and cannot provide a general reminder service.
“The structure of tax law is built upon the principle that it is a taxpayer’s responsibility to ensure they comply with their tax obligations. If a taxpayer has a reasonable excuse for filing late, they should let us know, so the penalty can be reviewed and, if appropriate, removed. However, we will robustly defend our decisions to charge penalties where taxpayers have failed to comply.”
AccountingWEB’s Head of Insight has been with the site since 1999 and likes to spend his time studying accountants’ technology habits. When not nerding out, you can find him exploring obscure indie music and searching for the perfect organic sourdough loaf from his base in Brighton, UK.