The first known tribunal case concerning penalties for late filing of full payment submissions (FPS) has been lost by HMRC due to poor and inappropriate documentation.
HMRC issued late filing penalties to J & L Benson Building Services Ltd (TC06546) for two consecutive months: June and July 2017. The initial penalties were issued on 1 September and appealed (I assume via the online PAYE penalty appeal system) on 11 September. The appeal was rejected after a manual review on 25 September.
On 26 September the business received a letter from HMRC rejecting the appeal saying ‘reasonable excuse’ did not apply, and that the penalty of £0.00 (!) for June 2017 and £100 for July 2017 remained in place. It gave no other explanation for rejecting the appeal.
The business asked for an internal review by HMRC, which is supposed to be conducted by an independent team to assess the HMRC decision against the law. The review was concluded on 1 December 2017 and HMRC responded saying that the review had left the penalties in place.
On 28 December 2017 a business calling itself ‘John Benson, J&L Benson’ appealed to Tribunal, rather than J & L Benson Building Services Ltd. On 2 February 2018, HMRC asked the Tribunal if there had been an appeal and was told there had not been and so the penalty was issued again. On 19 February the case was reopened by the Tribunal. It is not clear in the judgment where the appeal sent on 28 December 2017 had been for six weeks.
Information before the tribunal
- A screen print of the RTI online appeal system dated 8 September that indicated a penalty of £100 and the words ‘Action: not applicable’.
- A screen print ‘Summary of filing failures’, indicating a filing date of 9 July 2017 and a payment date of 30 June 2017 (I assume ‘payment date’ refers to the payment date shown in the FPS) and that this equated to one filing failure. Yet HMRC’s submission to the FTT was that this document showed filing failures for the periods ended 5 June and 5 July 2017.
- An extract from HMRC’s records saying there had been lots of late filing failures by the business between 2015 and 2017. But for tax months ending 5 June and 5 July 2017 the records showed four failures, not two.
HMRC chose not to share the grounds of the appeal with the judge. Benson, director of the business said he was the only full-time employee so sometimes he overlooked paperwork. Also, he didn’t know how to file a RTI return when he had no money to pay to HMRC, (there was no tax or NI due on the first late FPS) and that when there was money due the following month he filed on time.
HMRC provided no explanation as to why the first penalty for tax month ending 5 June was zero even though an employee had been paid that month.
The law and the decision
HMRC has to prove a filing failure that could incur penalties. The judge accepted there had been a failure to file on time for 5 July 2017, and that a penalty notice was issued and received.
However, paragraph 18(1)(c) Schedule 55 FA 2009 requires that the penalty notice must show the period in respect of which the penalty was assessed. In this case the judge had no idea if it did as he hadn’t been shown the notice by HMRC.
He only saw a specimen notice which had the year missing, and referred to a quarter date ending 5 July rather than a tax month. His view was that as two separate tax months were not shown the notice was invalid.
Furthermore, the judge was not persuaded that HMRC could rely on s 114(1) TMA 1970 that deems a notice to be valid if its intent can be clearly understood. He felt the intent of the notice could not be clearly understood.
How the penalty had been calculated was not provided to him. In cancelling the penalties, he drew attention to the judgement in Baylis v Gregory, “that specifying the correct dates is something HMRC must get right”.
For HMRC: provide the tribunal judge with all the necessary information and make sure that it supports your case.
For the business: date appeals appropriately and use the full and accurate company name on all documents. Judges like to know who is before them and the correct sequence of events.
The judge in this case made it perfectly clear in his decision that it was only HMRC’s ineptitude in providing the appropriate documentation that had led to the cancellation of the penalties. Also, he felt business did not have a reasonable excuse, as it had a track record of late filing.
Sting in the tail
In a final stinging rebuke to HMRC the judge said it was unforgivable that the original rejection of the appeal contained the phrase: “Our view is that a reasonable excuse is normally an unexpected or unusual event, either unforeseen or beyond your control”.
He made this comment because the judgement in Christine Perrin v HMRC  UKUT 156 (TCC) had made it clear to HMRC that they could not go further than the law and define “reasonable excuse”. The judge’s concern was that “trotting out to this mantra” would inappropriately dissuade a taxpayer from a further appeal.
Will HMRC change the layout of RTI penalty assessments? Will they change the wording of appeal rejections? It might be sensible to do so before the next case of late filing of FPS reaches the FTT.
About Kate Upcraft
Kate is a technical writer, editor and lecturer on all aspects of employing people - primarily payroll and HR matters.