If the Red Lion Trading Partnership had understood the difference between penalties for late filing of RTI returns and penalties for late payment of PAYE, perhaps they wouldn’t have appealed against the late filing penalties.
The appeal by Red Lion Trading Partnership (TC07070) related to an RTI penalty issued by HMRC on 16 November 2018 in respect of the tax quarter ended 30 September 2018. The employer made a relevant payment to two employees on 26 August 2018, but the RTI return was not submitted until 7 September 2018.
A penalty of £400 was issued in respect of the August payment and a subsequent failure in the tax month ending 5 October 2018. For some reason, the second penalty was not appealed so it’s unclear if the employer thought the circumstances were different. This case, therefore, only concerned the £200 penalty related to the 26 August relevant payment.
HMRC had already cancelled late filing penalties issued to the same employer for the tax months ended 5 March 2018 and 5 April 2018. It appears that HMRC had applied a light touch and tried to educate the employer in their RTI obligations – with limited success.
Relevant payment vs payment of PAYE
HMRC’s employer education message was provided in a letter dated 28 June 2018, which at three points referred to the need to make an RTI return on, or before, a relevant payment is made to an employee.
Regulation 67B of the PAYE Regulations requires that a Full Payment Submission (FPS) is sent on, or before, a relevant payment is made. So, in this case at the latest by midnight on 26 August 2018.
A return filed late invokes a FA 2009, Sch 55 penalty that is geared to the number of employees on the FPS. A penalty of £200 is levied for each failure to make a return on time for an employer with between 10 and 49 employees. An employer can ask for the penalty to be cancelled if they have a ‘reasonable excuse’ for not making the return on time.
No reasonable excuse was offered in this case, as the employer relied on its assertion that the payment of the tax/NI due on the payment made on 26 August was made on 7 September 2018, the same day as the FPS was filed. The employer reasoned that this was not late as the payment would have been due by 22 September if paid electronically and by 19 September if paid by cheque (as a small employer is still entitled to do). The employer appeared to be unaware, despite HMRC’s education letter, that the £200 penalty was not for paying the PAYE late, but for filing the RTI return late ie after midnight on 26 August.
In this case, HMRC acted more than reasonably. It cancelled the first two late filing penalties and tried to educate the employer. When the employer did not change its behaviour, HMRC issued a properly geared penalty as there were no special circumstances that would provide for it to be reduced from the amount set in FA 2009, Sch 55.
In contrast, the employer did not heed the HMRC’s education letter. It did not appreciate that its payroll processes were wrong and offered no reasonable excuse other than that payment wasn’t late, which had nothing to do with the penalty.
Actual payment date
I assume that the payment date in the FPS sent by Red Lion showed: 26 August 2018. If it had shown 7 September 2018, then HMRC would have not been able to establish if payment was made on 26 August unless that payment was made by BACS, and was hash-matched to show to which FPS payment it related.
This is the problem we have with the PAYE regulations that require a return to be made on, or before, a relevant payment is made and the late filing penalty which is based on the payment date in the FPS. So, whilst filing should take place on, or before, the date of the relevant payment, the date in the FPS should be the contractual payment date.
This is crucial for the Easter weekend. Any contractual payment dates of 19 to 22 April that are paid on Thursday 18 April as it is the last banking day before the bank holiday, should be filed by midnight on 18 April but must have a payment date in the FPS of the contractual payment date of 19 to 22 April. This ensures the earnings are correctly allocated to the correct Universal Credit (UC) award period. Using a payment date of 18 April 2019 could lead to the earnings being recorded in the wrong UC assessment period.
The April Employer Bulletin covers this in more detail.