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Taxpayer had reasonable excuse as took legal advice

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Fastklean Ltd successfully challenged penalties relating to the late filing of employment intermediaries returns, as it relied on professional advice that such returns were not required.

5th Nov 2021
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The key areas of legislation considered within this appeal were sections 716B and 44 ITEPA 2003.

In brief, section 716B requires an employment intermediary to provide to HMRC specified information relating to payments made to workers who work for a third person when PAYE has not been operated.

However, where one of the two conditions within section 44(2) ITEPA 2003 is met, there is no requirement for an employment intermediary to file an employment intermediary return with HMRC.

HMRC enquiry

Fastklean has operated a PAYE scheme since 2003, and registered as a CIS contractor in 2010. Prior to registration, Fastklean sought professional tax advice to establish their PAYE status issues and obligations.

In February 2016, HMRC informed Fastklean that it intended to conduct a check of its employer and construction industry scheme records.

The company subsequently sought legal advice, and was informed that the PAYE provisions were inapplicable under section 44 ITEPA 2003, given the manner in which Fastklean’s cleaners provided services (the cleaners were not subject to, or subject to the right of, supervision, direction or control by any person).

In June 2017, HMRC completed its check and concluded that Fastklean’s obligation to provide employment intermediary returns applied to all supplied workers by virtue of the relevant legislation.

Despite counsel’s advice that returns were not required, in order to comply with HMRC’s request to bring their tax affairs in order, in February 2018 Fastklean submitted the relevant returns.

HMRC issued Fastklean penalties totalling £5,750 under section 98(1)(b) TMA 1970 for failing to file employment intermediaries returns on time, as required under regulation 84F Income Tax (PAYE) Regulations 2003. The penalties related to seven quarterly periods ending between 5 July 2016 and 5 January 2018. Fastklean appealed [TC07773].

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Replies (5)

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By Paul Crowley
05th Nov 2021 15:47

This looks to me like a fair result
The taxpayer took care by taking advice, twice.
This was not some chancer who knew the returns needed to be done and just did not get around to it
Shame on HMRC for even taking this to tribunal
What was the intension of parliament?
Was it an attempt to farm penalties or to accept that humans and tax advisors can make mistakes.

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By anneaccountant
06th Nov 2021 12:19

Does this create a general precedent then that if a tax payer takes advice from a professional or gets a professional accountant to file his tax return then the taxpayer has behaved reasonably and this might then preclude HMRC from imposing penalties for errors on a tax return?

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Replying to anneaccountant:
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By Paul Crowley
06th Nov 2021 17:48

Definitely not
FTTs do not set precedent

HMRC would need to appeal. If they do, it could be interesting.

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Replying to Paul Crowley:
By SteveHa
08th Nov 2021 13:02

HMRC will not appeal where there is a danger of establishing a precedent that goes against them.

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Replying to anneaccountant:
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By john corbett
07th Nov 2021 00:01

Professional advice can preclude the charging of penalties but paying for advice does not always result in obtaining professional advice. There are many tax advisors who are not qualified to give professional advice and a few qualified advisors who will interpret legislation to suit their clients requirements. With advice from the unqualified the client normally loses but the qualified advisor chancing their arm they will normally pay the penalty on behalf of the client to avoid any legal comeback.

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