Tribunal rejects trio of RTI penalty appeals

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Robert Lovell
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The first tier tribunal has rejected three RTI penalty appeals after the accounting firm involved experienced problems filing end-of-year annual returns for 2012/13.

In April 2013 accountancy firm Tax Link installed new software in order to comply with the requirement for real time information (RTI).

Despite its attempts to comply with RTI, the migration of data to the new software caused a disruption of computer records, including PAYE reference numbers. HMRC had no record of an attempt to file the return before the due date.

Unlike two recent RTI penalty cases, which went in favour of the taxpayer, all three were turned down by the tribunal.

The cases were...

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21st May 2014 12:26

RTI fines

So this is HMRC not issuing fines for the first year of RTI, to enable us all to get used to it ?

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21st May 2014 15:25

rti is ALL FINE
there has been a fine for late p35 for ages!

i agree it's a nightmare, but to be fair this is not an rti item.

everyone should be jumping about THIS YEAR, where it could be £100 PER MONTH PER COMPANY

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21st May 2014 12:43


Blimey whats up with HMRC they are flexing a bit of muscle and shooting holes into every appeal.  I think the hand of politicians is involved, indirectly of course.

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21st May 2014 12:44

HMRC threatens business

I'm beginning to think that we don't actually need the hassle and threat of penalties that running payrolls for clients brings.

We gave it a try, but in reality, which British Company would be expected to enter into a contract where the penalty clauses outweighed the contract value?

We run the risk of at least a £100 penalty per client per month when we actually charge the client far less than that.

I'll say it again, as an ex businessman, RTI is the biggest threat to businesses in this country.....until Auto Enrolment comes along.


And all this from a Government who pledged to reduce red tape for business!!

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21st May 2014 12:46

Appeals process

I would be greatful if anyone could advise me of the appeals process, who's involved and can accountants, members of the public ect sit on in it, and where do they take place.

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21st May 2014 12:57

it's not an RTI penalty, it's an old style late P35 penalty with RTI used as an excuse

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21st May 2014 13:52


I agree , its a P35 late filing penalty but I say again ...why are HMRC fighting these basically £400 penalty appeals at the FTT?

Surely its costing more to fight/defend  these cases than they receive!

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21st May 2014 14:07

Defending appeals

There are several aspects to the question as to why HMRC pursue these appeals.  Firstly they are appeals decided 'on the papers', neither HMRC or the appellants and their accountants attended the appeals which were settled on an agreed bundle of documents, so the costs are minimal.  Secondly if it became known that if you appealed a penalty HMRC would back down, everyone would appeal and HMRC would collect very little in terms of cash.  Thirdly, it is very rare that costs are awarded by the First Tier Tribunal so this may encourage appeals that have, in reality, little chance of success.  At the Upper Tier costs are awarded and that is why so few of these technical issues (perhaps with certain notable exceptions like Hok Ltd where I suspect that the costs are borne by HMRC to get a positive ruling in their favour) go to the next level of appeal.  The fundamental mistake, made some years ago, was the Labour Party willingness to replace the Special and General Commissioners, who did a good job, with a Tribunal structure which leads to highly qualified judicial staff, who would have been Special Commissioners, having to hear hundreds of routine administrative appeals, like these three, which would have been ruled upon by the general commissioners, cvost effectively, never reported and so not conflated up into press reports which miss the fundamental underlying point. It ain't RTI...

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21st May 2014 13:06

Not an RTI penalty

Ah yes, it just sunk in that it said 2012/13 !

But Kenatnam has it right, it's a huge problem for small businesses and a big disincentive to taking on staff, clients say this all the time.

But at least George Osborne's £2000 NI rebate will pay some of the fines.



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21st May 2014 13:18


I think these days HMRC are investing so much time and energy into penalties and the appeals process that other areas are in meltdown - like CIS.  Oh I can't wait for Auto Enrolement!


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21st May 2014 13:52

Nigel's right

Clearly all appeals concern firms NOT taking part in the pilot exercise so this is an old style P35 late submission where the migration to RTI is being used as the excuse.

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21st May 2014 13:56

So we can expect a penalty

for Ltd Co not putting the exact CIS deduction (from them) onto the FPS every month because the contractor hasn't sent them out on time. It should be a reasonable excuse that, as HMRC do not give information out that they hold, it would be impossible to know exactly what a contractor had put through for the month in question - regardless of how good you keep your records.

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21st May 2014 14:23

Hold on 2012/2013????

Was 2012/2013 the pilot year? Was this firm in the pilot scheme, because if so is it not rather disingenuous of HMRC to penalise a firm using a pilot scheme? If not, it seems harsh as corruption was the obvious reason, and as this can be proved fairly easily, HMRC are very mean in persisting in the applying of penalties?

But as an aside, was the Hok case not won by the client that the £400 penalty was unfair as HMRC were unfair in not advising earlier that a penalty had arisen? So the penalties should be reduced in part to £100 per client?


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21st May 2014 15:52


2012/13 WAS the pilot year but none of the three firms were taking part in the pilot.  HMRC DID penalise firms taking part in the pilot if they did not submit an EPS or an EYU by 19 May 2013 ( with limited exception where they relied on the revenue's own Basic PAYE Tolls kit which did not contain an EYU until June 2013)

The Hok case was decided in favour of the taxpayer at the First Tier Tribunal under Geraint Jones QC BUT this was overturned by the Upper Tier Tribunal who slapped Jones' wrist pointing out that he, and the FTT, did not have the power to vary a fixed rate penalty, only to confirm it or cancel it if it was wrong, which it wasn't.

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21st May 2014 16:37

File note and help
There was no file note provided to the tribunal and tax link didn't seek assistance from HMRC...basically, their argument fell down in the evidence. Not RTi, normal year end process. It happens everyday when changing software, they made an incorrect assumption. They will need to just move on, and get better next time.
As for HMRC, RTi & auto's going to be a bumpy ride-did anyone mention the implications of these penalties being recovered from bank accounts whilst they are disputed, as per the proposals?!

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22nd May 2014 09:17

A bit of post-facto editorial clarification

I'm just jumping in here to apologise for the article not making it clearer in the headline and introduction that - as several commentators have pointed out - the penalities applied to late sumissions of the final 2012/13 P35 annual returns before RTI took hold.

The switch to new software was blamed for late filing - but it might be possible that with all the distractions the accountant/payroll provider simply forgot about the previous year's obligations for the three clients.

The confusion is partly down to an editorial decision to split these cases from a couple of previous decisions that went in the taxpayer's favour (partially in one case). These cases also related to the complications around making the transition to RTI. Since they appeared to be the first emergence of RTI-related appeals we looked for signs of emerging trends (the cases basically went 3.5-1.5 in HMRC's favour), but then noticed that the three tribunal defeats all related to the same firm, with the same excuse in each case, which was decided by the same judge working from paper submissions.

We thought the episode was worth looking into in it's own right, but omitted some of the background included in the previous article that would have set the scene more comprehensively. Please accept my apologies for this oversight - and thanks to all of you who put this right by highlighting the key facts in your comments.

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By CoxE
22nd May 2014 09:17

Late filing penalties generally

This case exposes what, in my opinion, is a mounting and very serious concern for the profession as a whole.  

Most importantly, HMRC's stated and only reason for raising penalties is, famously, not the money, but rather to punish and correct errant taxpayer behaviour, " alter taxpayer behaviour" as the mantra has it.

The 2012/2013 late filing penalties, in these cases, were levied upon the taxpayers in question as a result of a third party failure (the accountants) which, in turn, was due to technological difficulties but could have been caused by any one of the myriad, genuine practical problems that beset us all.

The only way out of a late filing penalty is a "reasonable excuse", which specifically excludes third party failure, so the appeal was, in reality, a non starter but, quite clearly there is a fundamental consideration here which the rules fail to either acknowledge or accommodate.  

There is no possible way that these penalties penalties can address taxpayer behaviour, as taxpayer behaviour was not involved in the failure.  The taxpayers probably knew nothing until the penalty notices dropped onto their respective door mats, and this therefore constitutes an inappropriate use of penalties, and one that is widespread and which must be addressed.

Where there is no potential for a penalty to achieve its stated aim of "the correction of taxpayer behaviour" there should be grounds for a "reasonable excuse", or an alternative remedy, unless the much denied truth is that penalties are in fact about raising money.

Penalties are levied against the taxpayer but it is probably the case that the Practice in question will pick up the tab either by paying, or by rebating fees, as a matter of commercial imperative.  

This is something that many of us have had to do on an occasional basis but, given that we now face weekly, monthly, quarterly and annual deadlines, all with their attendant penalty regimes (or will do once the whole RTI penalty regime is live) the potential for a hardware, software, broadband or other failure, at just the wrong moment, to saddle us, as in the scenario above, with twenty or thirty or a hundred individual £100.00 penalties, with no hope of a "reasonable excuse", nor other remedy, is nothing short of frightening.

HMRC will of course take the view that such penalties are not our problem but we have to live in the real world and, as a matter of commercial fact, they are very much our problem.

The case for a remedy, however, is not so as to insulate us, welcome as this would be, but to acknowledge and remedy the present, inappropriate use of penalties where the circumstances are such that taxpayer behaviour has played no part and cannot, therefore, be addressed in any fashion by the imposition of a penalty.

I propose raising this at our next W T meeting - hope springs eternal!












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22nd May 2014 14:43

Penalty imposition

CoxE makes a superficially compelling argument against the imposition of penalties in these cases but what, frankly, is the alternative?  If penalties were not charged on the taxpayer because of a failing by their representative, their agent (and just think about the term agent for a while - in law the actions of the agent are the actions of the principal, and if they weren't commercial law could fall down) then any taxpayer wishing to avoid being penalised would simply appoint an agent.

I think that the imposition of these penalties would certainly change client behaviour, even if the behaviour is to seek a more efficient firm than the one that got confused in this case and saddled their clients with these penalties.

If you are going to suggest that the imposition of a penalty is not the appropriate course of action for HMRC then what is the alternative that you would suggest to take the place of a penalty?

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22nd May 2014 16:44

Reasonable Excuse

Just before Christmas last year a tree blew down in the storms and I was without a telephone line for fifteen days - this meant I had what I thought was a reasonable excuse for not filing RTI Returns.  I tried using a dongle which was virtually useless because of the bad reception where I live so I saw the only solution as being to take my computer somewhere else where I could connect to the internet but then you start to wonder whether this could result in data security issues.  Of course the other thought was that I only file a few and perhaps the service would be connected shortly as promised.  It is events like this that focus your mind on the potential pitfalls of the electronic office.  Amidst all this I did miss a couple of deadlines and received letters warning me of the errors of my ways but I was assured that RTI penalties would not be impossed at this stage and so far they have not been.

Now I was under the impression that "Reasonable excuse" was deemed to be "What a reasonable person would do!"  So if a taxpayer appoints an agent then the agent is acting on behalf of and therefore must untimately be responsible for any fines even though it is th captain of the ship who will be prosecuted.  Now having asked HMRC I am told that "WE" must exercise as many precautions as are necessary to protect our data and our systems - which put that way is quite terrifying especially when you feel HMRC can be a little trigger happy with their penalties!

Do not get me wrong I am a staunch supporter of filing electronically and in theory I prefer it to manually taking stuff down to the local Tax Office (yes I do appreciate we can no longer do this) but the whole scenario is frightening.  It is ever so reassuring when you receive a message back from HMRC when you have filed sucessfully BUT this is not always the case!!!!  I have not received communications on more than a couple of occasions.  Whilst I am on this subject what about Notices of Coding, it seems these have been removed within certain time limits if the message has not been accessed - how can we be expected to implement changes to codes if we never know they have been issued.

I serriously foresee many problems on the horizon with our use of computers and electronic means.  When they are working well they are fantastic.  If they go wrong then there may well be no supporting evidence and I feel we could be hung drawn and quartered for trying our best to comply with things unless somebody can provide a clear definition of "Reasonable Excuse".

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23rd May 2014 14:59

Reasonable excuse and electricity

Kookies1ot makes a good point - there will be occasions when you are physically prevented from filing online and that should constitute a reasonable excuse.  There is no clear definition of what it means, of course, by tribunals have ruled in the past that there is no legal definition so the words take their ordinary meaning in usage - you have to have an excuse and that must simply be reasonable.  A lot will come down to a trail of evidence - if you cannot log on to the internet you need to take screen grabs to prove that on a particular day you were unable to log-on, and whilst HMRC would argue that you could take a lap-top to an internet cafe (really?) it is ultimately not down to them it is for the Tribunal to decide whether an excuse is a reasonable one.  If you can show that you have done everything that a reasonable person could do - and you have proof - then one must trust that a tribunal judge would find that an excuse is, indeed, a reasonable one.

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By CoxE
24th May 2014 11:27

Reasonable Excuse and Electricity

I refer to both Paulsoper and Kookies1ot' s comments.  Both are valid but I think that Kookies1ot has grasped the thrust of my point and reasoning rather better.

In response to Paulsoper's points particularly, I do not suggest that either the mere existence of an agent, or agent failure due to carelessness or incompetence, should constitute reasonable excuse but rather that the circumstances of any third party failure should be considered in the same way as the circumstances bearing directly upon the taxpayer, rather than being excluded, as they are.  

I do not believe that recourse to the Tribunal can be of any help as,onerousness aside, even if the agent has the most reasonable of reasonable excuses, the taxpayer as appellant does not, as it is by definition a third party failure and thus excluded.  

This, unless my understanding is incorrect, is the very nub of the matter.  If anyone can demonstrate that I am wrong in this interpretation I am totally open to suggestion and should in fact be delighted as it would constitute a solution to the problem as I see it.  Conversely, if my interpretation is correct, then I continue to contend that there is urgent need for change.  

The appeal cases in point, I believe, were only entertained by the Tribunal upon the basis that it was HMRC's systems that were at fault, and thus not a third party failure.


Kookies1ot used the term "frightening" and I can but agree as our indirect exposure to such penalties, in the event of an "outage" of any one of a variety of services, at the wrong moment, could give rise to multiple failures and this is a real risk to which we should not be exposed.

There are limits to the contingency provisions and fail safe measures that can be put in place and our own geographic location would seem to be very similar to Kookies1ot's in that we too have suffered power and or telecoms losses, sometimes for several days, often due to trees, fallen or otherwise, and our broadband is routinely extremely slow and prone to difficulties, perhaps focusing our attention upon these possibilities.  Please do not tell me to move - retirement would be preferable!



















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