Taxpayers win in RTI penalty appeals
A string of decisions arising from the transition to real time information (RTI) have started to crop up at tribunal with two recent cases going in the taxpayer’s favour.
From just a handful of cases so far on the complications around making the transition to RTI, the general trend is not much taxpayer joy. But there are a couple of examples which show there is hope.
In the first case, Hogg Joinery v HMRC, the taxpayer won on reasonable excuse based on HMRC delays in issuing penalty notices.
Hogg Joinery appealed HMRC’s decision to impose penalties of £400 for late submission of the Employer’s Annual Return for the year ending 5 April 2013. The return was due to be filed online by 19 May 2013 and was filed online that September.
The appellants said that the 2012/13 return and those for the two earlier years were submitted online on time. They had two other businesses and their bookkeeper filed the returns for all three businesses at the same time and in the same way.
According to the appeal, problems started when the business changed from a partnership to a limited company. They questioned why they were not notified that the P35s had not been received until two years after the due date of the earliest one, especially when they had consistently paid on time.
When they were told in September that the previous two returns were outstanding they tried to submit them at once but it took three attempts and a full morning on the phone with HMRC to submit successfully.
Hogg Joinery said staff agreed that the error had arisen at HMRC and that they should have been notified sooner.
Tribunal judge Norma Baird said she was concerned at the attitude of HMRC in this case and that it was clear the appellants had tried to file their returns on time and that “something went wrong”.
“Clearly there was a problem with the way their online submissions were set up but whether this was of their own doing or due to a problem at HMRC’s end I am unable to say.”
Baird accepted that they made the claimed number of phone calls to HMRC and rejected HMRC’s claim that the appellants only contacted them once.
She also accepted that the appellants took "all reasonable steps" to rectify the situation they found themselves in.
“The whole situation ought to have been investigated and explained,” she said.
She added that given the failure of HMRC to provide a clear explanation of events and to acknowledge the efforts made on the telephone to obtain information and assistance, she found find that: “…in all the circumstances established that on the balance of probabilities they have a reasonable excuse for non-payment of the penalties.”
In another recent case, Billett & Billett v HMRC where the taxpayer neglected to send a P35 annual return after switching to RTI, the court awarded the taxpayer a partial victory over the late RTI filing penalty.
The first tier tribunal (FTT) ruled in part favour of a caravan park owner who faced difficulties in filing his annual return because of software problems using HMRC’s RTI system.
Geoffrey Billett was required to file the P35 return for Hill Farm Caravan Park for the year 2012/13 by a deadline of 19 May 2013.
When the return had not been received by 19 September that year, HMRC issued a first late filing penalty of £400.
Billett challenged this because he had filed the return but had experienced problems due to migrating to RTI and that these amounted to a reasonable excuse for not filing on time.
The tribunal heard the caravan park business had migrated to RTI that April and adjusted its software, but their software provider QuickBooks did not allow them to file the return for the period 2012/13 while they were set up for RTI.
The appellant sought the assistance of QuickBooks to resolve the problem and the return was filed on 10 May.
When the taxpayer received the first penalty letter on 10 June he contacted HMRC and was advised to ignore it due to the ongoing software problems.
Billett told the tribunal he assumed the problem had been resolved and took no further action.
HMRC agreed that return was created prior to the deadline, but said it was still outstanding. The Revenue also accepted he had telephoned them but denied that he had been told to ignore the penalty letter.
The tribunal found that while HMRC had no record of receiving the P35 on 10 May, the taxpayer believed he had filed the return.
Tribunal judge, Joanna Lyons, said HMRC’s notes of the phone conversation in June made it clear that Billett was not told to ignore the penalty letter.
The Revenue said at the time they had agreed an extension of the filing date to 25 June because of potential RTI migration issues and the tribunal accepted that Billett had a reasonable excuse for the failure to file the return between 20 May and 25 June 2013, but not beyond.