Agents up in arms over PAYE penalty avalanche - update

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HM Revenue and Customs is fielding a torrent of appeals and queries for penalty notices that were sent out last week relating to P35 year end returns that were allegedly not filed for the 2005/06 tax year.

More than 30 AccountingWEB members responded to Jane H's Any Answers posting about P35 penalty determinations for 900 issued to clients from returns outstanding since 19 May 2006. The interim penalty notices were based on 100 per 50 employees/subcontractors outstanding for each month a return was late. Jane H commented, however, that all of the relevant P35s had been filed online and she dispatched e-mailed receipts for all the submissions.

On a subsequent visit to the HMRC website, Jane H found anotice apologising for the late dispatch of the penalty notices and indicatin...

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03rd Apr 2007 10:33

Could the Revenue be correct ?
Not about taking 9 months to issue an "interim" penalty when they do not think that they received a valid return by 19th May 2006 nor about the habitual Revenue practice of "issuing" a penalty which does not get printed and sent out until a week or so later.

But what about the basic issue of not having received a valid return?

- A test return is, by definition, not a final return. It may be confusing that the responses to a test return are the same as those to a live return, but isn't that the point of a proper test? I would be surprised if the Revenue allows a successful test submission as valid grounds for appeal against the penalty. Incidentally, there has been very little comment on the software used to file returns last year. Is this test facility something on the Revenue's own software or on particular brands of third party software?

- Nil returns cannot be made online. The Revenue have always made this clear. You have to write to the tax office or send them the paper P35 with nil written all over it in order to get them to mark it off. If you do nothing when the Revenue has issued a P35, they are entitled to believe that you have failed to file a return and to charge a penalty.

- The fact that no PAYE was actually payable is irrelevant. It is either a nil return as above or one required to confirm earnings above the NIC LEL, in which case, if it has not been filed, it deserves a penalty.

- Dormant company? Presumably a nil return as above if the company is genuinely in existence. If the Revenue has issued a P35 for a scheme which you have told them should have been closed, why would you not write to them to point this out? Their records may be wrong, but they are not going to get corrected unless you communicate. Only if the company has been struck off can you safely ignore a P35.

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02nd Apr 2007 17:08

The delays in issuing the notice means that the penalty had incr
We have received approximately ten P35 penalty notices, which at first sight have been raised in error. The Revenue do not understand client relationships and until we can choose which body (or country) we deal with for our tax matters they never will. The Revenue believe that making a correction is sufficient, they do not understand the potential loss of confidence their erorrs can introduce to a relationship.

My concerns about the current situation (apart from the fact that the notices have gone out) is that they were not issued until 12 March and none of our clients recieved them before 20 March, therefore the penalty had already increased by a further £100. The Revenue in replying to one appeal totally ignored my request for the dates on which earlier penalty notices had been sent out, strange.

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02nd Apr 2007 17:35

Ticking me off
The test submissions sent do contain all the information the Revenue require and only one string says it is a test. On the basis that all the information is present when they receive it, any appeal should be upheld as the HMRC could have used the test information, what they should not have done was to reply with a "successful filing received" notice. There is no way that anyone sending a test submission would know that they had done so, once they received the "successful filing received" notice. Fortunately we only had one client this happened to, but of course it has happened to the poorest who nearly had a heart attack when she got the penalty notice!

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By Anonymous
02nd Apr 2007 16:19

Unfair practice by HMRC
I sympathise with all those people affected by the £900 penalties. Last year I was affected similarly because of a submitted, but unsuccessful, return which I did not pick up on. The first I knew of it was when the penalty notice for £900 arrived. A letter to the tax office concerned produced no result, but I was very lucky in being able, through the offices of a good friend, to bring this to the attention of the Inland Revenue executive. Wheels turned and eventually, the penalty was reduced to £100. The grounds for this were that the IR had acted unreasonably in not issuing penalty notices after 1 month of the final due date to give me a chance to rectify matters earlier.

The fact that this is still recurring leads me to believe that this may be a cynical money-raising scheme.

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By Anonymous
03rd Apr 2007 21:03

HMRC maths?
Surely 154,000 out of 1.6 million returns is 9.6% - not less than 1%

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04th Apr 2007 14:06

Penalty for PAYE scheme which did not exist
A client of mine, for which I set up the PAYE scheme in December, when the company commenced to trade, received a £900 penalty notice for 2005/06. We filed all our 2005/06 P35s on line and have not received any other penalty notices

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04th Apr 2007 11:24

Nil returns cannot be made online
It is not correct that Nil returns cannot be made online.

I made my P35 submission online for 2005-06 showing nil - received a sucessful submission notice and received the incentive payment of £250 for my trouble.

To date I have not received a penalty notice and do not expect to receive one.

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04th Apr 2007 14:37

We received 3 of these penalty notices. None of them were for returns filed on line - one was for a "blank" return which was filed locally, and on enquiry it was still in the file of returns to be processed - in March 2007!; the other 2 were also blank returns, but we were told to inform the local office by letter that there was nothing due, rather than filing a blank return; again, these were not actioned.
These were all for Sussex area, and we can't now contact the area office - it's all dealt with from Glasgow.
It seems to me that the "system" sent out these letters because nobody had bothered to enter up the blank returns. By the time all the admin was shifted to the central office, the persons responsible had left, or been made redundant. Somebody saving money at the tax office, but costing the agents more in time & effort which we can't recover.

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04th Apr 2007 15:33

Minor edit - HMRC percentages
Thanks to Bob for pointing out the mistaken percentage claim in the 4 April HMRC update. Both the official and the editor involved got the basic calculation wrong by a factor of 10. The article now makes more sense now that I have removed that bit.

However, the HMRC official explains that the proportion of penalties to returns calculation should not be based on 150,000 divided by 1.6m (total returns filed). Many of the penalties were for returns that were not filed, so the true base point should be 1.8m - the number of companies who *should* have filed their returns.

My apologies for not querying the numbers more carefully.

John Stokdyk

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04th Apr 2007 16:05

That Upto Date!
Got one too and already appealed. No pay no deductions....etc.

My only surprise is that, on past performance, HMRC or so upto date and have finished reviewing 2005/06 in less than twelve months!

Is it a record?

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04th Apr 2007 16:24

Gordon's Giveaway
1.6m online files less say 100k compulsory leaves 1.5m @£250 a go. £375m - has HMRC saved this amount in unused seasonal staff I wonder?

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04th Apr 2007 16:29

In normal circumstances SA returns are logged when received and this enables the IR to issue penalties for non filed returns in February/March before the returns are actually processed. It also has the benefit of flushing out the lost ones at an early stage. Why cant this be done with P35's?

I consider that to charge £900 when the IR should have been aware of the situation at the £100 stage to be nothing less than theft.

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04th Apr 2007 16:53

Fantastic Idea...........................

Great idea mate, but the HMRC world is different to the one we all work in!

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04th Apr 2007 16:49

PAYE Penalty Statistics
So out of 1.6 million employers who filed PAYE year end returns, 154,000 penalty notices - nearly 10% of the total - were sent out, and of these an "overwhelming majority" were cases where a test submission had been successfully (!) filed online, but not the full, valid return.

We should compare like with like. How many of the 1.6 million returns were filed online?

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By Anonymous
04th Apr 2007 17:00

The £900 P35 penalties
Doesn't Reg 73 of Income Tax (PAYE) 2003 state an employer need only deliver a Return back to the HMRC where they are 'required' to prepare or maintain deduction working sheets for an employee.

No employee or no remuneration = no P35.

As far as I was aware this is not the same as SA and they quote this section when not allowing the online incentive! Can't have it both ways!!

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By raycad
04th Apr 2007 23:29

Don't companies have human rights, too?
My practice has received about ten of these wretched things. Some clients have received two - one for P35s and one for non-filing of a CIS36. This is even when the company is not operating in the construction industry. Who knows how the Revenue think a NEW company is within CIS.

Some were incorporated in 05/06 but only began trading (if at all) in 06/07. Clearly, no effort at all has been made to check whether a return was actually required. The problem, as many contributors have identified, is that this accursed system is now all done by computer, but with inadequate numbers of support staff. It is almost impossible to find anyone in the Revenue to "reason" with. If you, do, one finds that they are beyond reason, acting on their Head Office instructions.

One of our clients had a £900 penalty imposed for 04/05 because the P35 was e-filed but the CIS36 - which has to go by paper - allegedly was not. After appealing, and months of exchanges, the matter is now being listed for the Commissioners! I'm going to take it on a point of principle. There is an argument that an incorrect return was made, not a late one, in which case, the penalties are tax-geared, and there's no tax outstanding.

Even if this fails, it must be a basic human right to KNOW - or rather, be accused of - being in a default situation, and be given the opportunity of correcting any default. It's like a traffic warden writing out a parking ticket but you not being sent it until months later, by which time the fine has tripled!

Finally - and this really gets my hackles up - as I sit here and type this there is a flashing banner on the side of the screen which I accidentally put my cursor on. It opens an HMRC weblink which begins with

"HMRC is committed to helping you run your business. We've improved our Online Service so you can cut down on paperwork...." I couldn't read any further! I would seriously urge AWeb to "pull" this advertisement on the grounds of misrepresentation.

I spent a happy 20-odd years working in the Inland Revenue, half of them as an Inspector, and I am so saddened to see what has happened to a once-proud Department. What a complete and utter shambles it has become! Can you imagine what it will be like when the new CIS scheme MONTHLY penalties come in with effect from next month?? Saints preserve us!

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05th Apr 2007 13:07

please, no
Please confirm that your last comment was a very late and very unfunny April Fool.

If not, details of your info source would be appreciated.


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05th Apr 2007 11:10

CIS automatic penalties
Ray, just to put your mind at rest a little. New CIS penalties for late monthly returns are in abeyance until October to allow time for contractors to get used to the new scheme. Late returns will need to be in by then - err on the side of safety and have a ring round in early September - and there will be no penalties if they get up to date. However there MAY be an impact for cotnractors registered for gross payment as they will be in default. Nobody knows how HMRC are going to play that aspect....

At least the new CIS system will probably churn out penalties regularly, rather than waiting a year.....

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05th Apr 2007 11:19

Send to the Treasury
I think it is high time that with the number of hits this particular item is getting from the professionals that Accounting Web forward the whole lot to Mr.Brown and his co-horts just so they can see what a complete dogs ***** they have made of the whole system. Even the professional Revenue officers of long standing are sick to death of it.

By the way, did you know that within the next six months the Collectors at Cumbernauld and Shipley are being dispensed with in favour of a call centre in MUMBAI! God help us then.

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05th Apr 2007 15:13

Mumbai cannot be any worse than Cumbernauld. Has anyone managed to get thru by phone to Cumbernauld? Over the last year I have made three complaints about Cumbernauld. No response.

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05th Apr 2007 15:20

£140 million
If we assume that the vast majority of these notices are invalid then the amount of additional revenue that the Government is attempting to raise through these penalties amounts to £140 million.

Is this just another Gordon Brown stealth tax on small business?

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05th Apr 2007 15:29

So it's our fault!!
I see that HMRC is trying to pass the buck as usual, saying:

Because of the backlog created in dealing with the surge of electronic returns in 2004/05, employers and agents had been frequently warned that there would be a dely (sic) in issuing the notices for penalties arising from 2005/06 submissions.

I don't recall HMRC writing to me or any of my clients about the backlog, so how were we 'frequently warned' and how are we to know that filings had not been successful until we are told? And why doesn't HMRC have the common sense to send back a different message for test submissions!!! It's an absolute disgrace for HMRC to try and blame agents and 'customers' for its own shortcomings.

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05th Apr 2007 15:37

Working Together?
Our small practice had 4 £900 penalties for client's - all of which we believe are incorrect for varying reasons.
We had last year queried with HMRC why reminders were not issued for a "missing" CIS36 until it was found, submitted and a £700 penalty issued. The client had to pay up but our argument was that if reminders had been issued to us and/or the client the penalty could have been much lower. We did not receive a reply on this point despite pursuing it.
Upon receipt of the £900 penalties recently we took the matter of the delay in issuing such a penalty (or reminders) up with Greg Rattray of the HMRC Working Together team and copies of our e-mails have been sent to John Kimmer via CIOT/ATT. To be frank, Mr Rattray's attitude was quite abrupt and dismissive of what I see as a genuine and considerable problem for those of us at the coalface dealing with worried and upset clients. Not much evidence of a desire to work together - perhaps Mr Kimmer will have more success raising the issue.

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05th Apr 2007 16:38

Late filing penalties
The HMRC website says under Penalties (re finishing the tax year to 5/4/06)

You may be liable to a late filing penalty if any part of your Employer's Annual Return (P14's and P35) is received after 19 May 2006. A penalty notice will be issued on receipt of the late return. An interim penalty notice will be sent in September and the following January and May if your return remains oustanding by these dates.

I take it I'm not alone in not having received any of these interim notices.

Having received a penalty notice for a client, I have checked my payroll software. The 'test submission' box is not ticked. I had no reason to test this submission since it was not the first return filed for 05-06. Interestingly the software logs the return being received by HMRC gateway but is showing as not yet processed. Have HMRC suffered computer failure and data loss they have yet to own up to?

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By 0862937
05th Apr 2007 17:13

Penalty notices sent out so late
If the IR had sent out the penalty notices for late p35's in May/June as they used to do, this could all have been sorted out last year.

I read somewhere that the Inland Revenue have to report to their political masters the total amount of penalties that are sent out but do not have to report the actual 'take'.

This could be why they have taken so long to send out penalty notices - It increases the penalties.

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06th Apr 2007 10:01

Passing the buck..

How complacent of HMRC to assume that we inadvertently sent test submissions thinking they were live submissions.

All the penalty notices I received were from submissions made in live mode using 3rd party software.

I had a phone call from HMRC confirming, for one of my clients, that the penalty will be waived and the IT department are seeing if they can retrieve the data submitted or whether I will have to resubmit.

Needless to say, these clients have not yet received their online filing incentives yet either.

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06th Apr 2007 00:04

Oh dear. So much for....
....the new HMRC approach to sorting the wheat from the chaff, and treating the generally compliant with minimum intervention.

In the past, where a small business (for whatever reason) failed to file a P35 etc on time, but had not been sent one, and had no tax to pay, HMRC in my experience simply took a pragmatic line and waived any penalty that was "technically" due. (Incidentally, I had no idea about their public concession to cap the penalty at £100 - it seemed in the past to have been capped at nil).

This seems a practical and proportionate response, unless perhaps one is dealing with serial offenders who just never get a filing of any sort in on time.

Whilst the law may say a business has to ask for a P35 if it is not sent one by HMRC, we must again say we are discussing small, generally compliant businesses. It does seem iniquitous that the fine be levied where a P35 or similar notice was not issued and there is no tax/NI to pay.

There is a straight forward parallel with CT returns. £100 fine even if no tax to pay - BUT a notice to file the CT return is always issued. This question of notice is important to small businesses. If they receive a notice to file, and then file it in the bin, or ignore it, or file it safely in a drawer which never gets opened again, then getting fined does not seem an outrage.

It is fascinating that P35s are pouring out of the HMRC computer for 2006-07. That's OK, and I would feel that small businesses that failed to file properly after receiving one of those would have no room for complaint even where no tax/NI was due. But these P35s were simply not issued for 2005-06.

To those HMRC folk who seem to be adopting the line that we will not budge on this, at the risk of crying wolf, I must say that this really does appear to be a case of wilfully losing the hearts and minds battle with the great washed, as well as unwashed, taxpayer masses. The sheer anger is very widespread, and this just cannot help the (i) "pay your fair share" debate and (ii) we will help the generally compliant rather than punish them.

One wonders whether some of this is a backlash to the strange fiasco of HMRC having to pay the online filing incentive to those small businesses that had no PAYE/NI to pay over. I do not know of a single adviser who was not mystified as to how on earth the draftsman did not prevent that ludicrous anomaly. But, as they say, two wrongs do not make a right. And those who claimed the online incentive are most unlikely to be the ones caught out by this little exercise.

This is really a "PR" disaster for HMRC, and I do not mean that it is a superficial spin problem - it will be deeply resented and long remembered by many tens of thousands of folk who are otherwise compliant and law abiding. We talk about the generally compliant attitude to tax payment in this country - exercises like this WILL have a corrosive impact on this important factor.

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06th Apr 2007 10:50

Online Filing
Given the amount of clients that have been issued penalties despite having online submission confirmations I wonder if the Revenue have considered the costs sufferred by practices in dealing with their poor administration services. In addition we have also received late filing penalties for SA Returns despite having online confirmation dating back as far as October 2006. Given their haste to issue penalties to clients perhaps they should consider paying practice's fee for dealing with their administrative inefficiencies. They appear incapable of checking their own online filing database before issuing penalties. We are only a small practice and after recently reviewing the amount of time spent dealing with HM Revenue & Customs it by far the largest overhead our practice has of which probably 60% of which coudl be avoided if they did their own jobs properly. Perhaps we should put together a fee invoice for the time spent sorting their inefficiencies and error out after it appears unfair to pass the costs on to our clients!

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06th Apr 2007 14:25

Start the clock
The clock for increasing penalties should be made to start from when the first notification [edit postmark date] of a late return is issued. That would ensure they are diligent in issuing them on time.

However it would not raise as much revenue as this scam would if left unchallenged !!

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09th Apr 2007 09:49

Tit[***] for tat
Hmm, HMRC penalties based on amount of tax due .... seems like compensation should be proportional to size of erroneous penalty !

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07th Apr 2007 00:03

PAYE !! mess Up £13k default notice
We operate a Bureau on behalf of 70 charities and have 6 of the £900 notices. Last week things deteriorated even more when one of the clients had a notice for £13k- pay up immodesty or the bailiffs would be in to take goods. This was for unpaid PAY for the year end 2005. This has been paid on time each month and there has been no previous default notices.

Has anyone ever been successful in claiming expenses from Inland Revenue for time spent sorting out their problems?

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07th Apr 2007 09:42

Consistent Attitude
Sadly, from my experience, you have not been singled out for special treatment Antony by the National face of Working Together.

He has stated to me on several occasions that HMRC do not make's Taxpapyers or Agents that either send in the wrong information of no information at all. I find this naive approach indefencible.

If life were really that simple Mr Rattray, why we there be any need for Working Together at all, or why would I need to spend a minimum of two half days a year meeting with HMRC staff, trying to sort out all of the HMRC '#### ups' ?

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By Anonymous
08th Apr 2007 05:16

tax doesn't have to be taxing ?
What a shame for the Revenue to ruin things after the PAYE online filing went so much better in 2006 than 2005.

It is time for automatic compensation before the CIS monthly penalties are introduced.

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09th Apr 2007 08:21

Not just me!
Interesting to hear what you say Robert. Not wishing to move off the subject but I wondered if it was just me who managed to rub Mr Rattray up the wrong way!! I've corresponded with him twice in 2 or 3 years on different matters and on both occasions his attitude has been very aggresive in the Revenue's defence but not at all in a constructive manner to what I thought were reasonable questions and suggestions. I don't see much working together with that gentleman - he ought to have a month in practice to see what life's really like out there!

Back (sort of) to this penalty farce and PAYE in general, we too have a client who received a demand for over £40k (inc interest) "outstanding" re 2005/6. This client is probably our most dilligent at paying monthly on time. I knew exactly what HMRC had done - double count CIS tax deducted and shown on the CIS36 and, correctly, carried onto the P35 (submiited online). How did I know the answer without looking?....simple, the same happened re 2004/5. We got an apology then but no explanation as to why such huge demands are sent out without apparantly being checked. It's a good job we have a good relationship with the client and he can laugh it off. Hopefully our claim for compensation this year will be met.

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By Anonymous
09th Apr 2007 15:25

The mind boggles
I've recently received a 2006/2007 P35 for a limited company client that was dissolved in May 2004. Thank God I'm not far off retirement age.

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