Time Together v Revenue & Customs [2011] UKFTT 226 (TC)

FTT-Tax
Time Together v Revenue & Customs
[2011] UKFTT 226 (TC) · 2011-04-06
[1]This is the appeal of Time Together, a company limited by guarantee, against a penalty imposed for late filing of the 2009/10 end of year return (P35).[2]The appeal was filed on behalf of Time Together by its accountants, AGL Accountancy Services Limited (AGL), who had responsibility for the filing the P35.[3]The issues in the case were whether Time Together had a reasonable excuse for the late filing of the return, and if not, whether the penalty was correct. The law[4]The regulations for the filing of P35s are set out in the Income Tax (PAYE) Regulations, SI 2003/2682 reg 73:
“(1) Before 20th May following the end of a tax year, an employer must deliver to the Inland Revenue a return containing the following information. (2) The information is— (a) the tax year to which the return relates, (b) the total amount of the relevant payments made by the employer during the tax year to all employees in respect of whom the employer was required at any time during that year to prepare or maintain deductions working sheets, and (c) the total net tax deducted in relation to those payments. (3) - (9) … (10) Section 98A of TMA (special penalties in case of certain returns) applies to paragraph (1).”
[5]As provided in Reg 73(10) above, Taxes Management Act 1970 (TMA) s 98A sets out the liability to penalties for non-compliance with these regulations:
“(1) PAYE regulations…may provide that this section shall apply in relation to any specified provision of the regulations. (2) Where this section applies in relation to a provision of regulations, any person who fails to make a return in accordance with the provision shall be liable— (a) to a penalty or penalties of the relevant monthly amount for each month (or part of a month) during which the failure continues, but excluding any month after the twelfth or for which a penalty under this paragraph has already been imposed… (3) For the purposes of subsection (2)(a) above, the relevant monthly amount in the case of a failure to make a return— (a) where the number of persons in respect of whom particulars should be included in the return is fifty or less, is £100…”
[6]HMRC are empowered to determine the penalty by setting it at such an amount as appears to them to be correct or appropriate (TMA s 100). Because this is a fixed monthly penalty, their discretion is limited to ensuring that it is correct.[7]Section 118(2) TMA, so far as is material to this appeal, provides:
“…where a person had a reasonable excuse for not doing anything required to be done he shall be deemed not to have failed to do it unless the excuse ceased and, after the excuse ceased, he shall be deemed not to have failed to do it if he did it without unreasonable delay after the excuse had ceased.”
[8]There is no definition in the legislation of a “reasonable excuse”. It has been held to be “a matter to be considered in the light of all the circumstances of the particular case” (see Rowland v HMRC [2006] STC (SCD) 536 at [18]).[9]The taxpayer’s right of appeal against the penalty and the Tribunal’s powers are set out at TMA s 100B, which so far as relevant to this appeal, are as follows:
“(1) An appeal may be brought against the determination of a penalty under section 100 above and…the provisions of this Act relating to appeals shall have effect in relation to an appeal against such a determination as they have effect in relation to an appeal against an assessment to tax… (2) …on an appeal against the determination of a penalty under section 100 above section 50(6) to (8) of this Act shall not apply but— (a) in the case of a penalty which is required to be of a particular amount, the First-tier Tribunal may— (i) if it appears that no penalty has been incurred, set the determination aside, (ii) if the amount determined appears to be correct, confirm the determination, or (iii) if the amount determined appears to be incorrect, increase or reduce it to the correct amount…”
[10]The Tribunal thus has limited discretion: it can only adjust a penalty if it is not correct. The evidence[11]I was provided with the correspondence between the parties, together with extracts from the HMRC internet filing records for Time Together. I was also supplied with a P35 checklist generated for AGL using third party software, and dated 16 December 2010. The facts[12]Based on the evidence provided, I found the following facts.[13]Time Together’s 2009/10 P35 was due to be filed on or before 19 May 2010. On 12 April at 17.27 AGL attempted to file it online. The HMRC internet filing record for Time Together for this filing attempt includes the following data (with original emboldening): Tax Year Submission Type Date Captured Validation 2008 Compete 12/04/10 17:27:22 Fail[14]At 18.25 a further attempt was made to file the P35. At 18.29 a message was received by AGL from the HMRC computer system. It said:
“1. Department 3001 business The submission of this document has failed due to departmental specific business logic in the Body tag 2. [ref] business-rule Submission already received for this employer.”
[15]By letter dated 27 September, Time Together received a penalty notification for not filing the P35. This was its first penalty notification. It was charged a penalty of £100 per calendar months for the period from 20 May 2010 to 19 September 2010, a period of four months. The total penalty was therefore £400.[16]By letter dated 7 October 2010 AGL appealed the penalty on behalf of Time Together. The ground of appeal was that the P35 had been filed before the due date.[17]By letter dated 21 October 2010 HMRC wrote back to AGL, rejecting the appeal because the return submitted on 12 April was a 2007/08 return and thus the return had been rejected by HMRC’s software.[18]AGL reviewed the documentation for Time Together’s 2009/10 return. In the box labelled “Tax Year ending” the date 2008 had been included instead of 2010.[19]By letter dated 4 November AGL told HMRC that the other data sent on April 12 2010 was correct. AGL requested a HMRC review of the penalty decision, and also asked HMRC if it needed to resubmit the data.[20]By letter dated 14 December 2010, the HMRC review officer upheld the penalty and told AGL that the P35 needed to be resubmitted. The refiling was carried out on 16 December, immediately following receipt of HMRC’s letter.[21]The letter of 14 December opened by stating that “the decision in the letter issued to you on 21 April 2010 should be upheld.” AGL’s reply of 16 December said that no letter dated 21 April had been received and asked for a copy.[22]By letter dated 3 January 2011 HMRC stated that the reference to 21 April had been an error; the reference should have been to “the decision letter issued on 21 October 2010.” AGL’s submission on behalf of Time Together[23]In relation to reasonable excuse, AGL submitted that:(1) although the wrong date was shown on the P35, the correct National Insurance and tax contributions had been included;(2) when AGL received the rejection note timed at 18.29, stating “submission already received for this employer” they had assumed that the earlier attempt, at 17.27 had been successful, despite receiving a “Fail” message; and(3) the insertion of 2008 rather than 2010 was caused by a “software glitch” which has since been remedied.[24]Mr Laird, on behalf of AGL, said in his letter of 16 December 2010 that:
“ The first information I had regarding the non-submission of the P35 was a penalty notice dated 27 September 2010 and had I received the letter you mentioned dated 21 April 2010 highlighting no doubt the lack of submission of the P35 I would have immediately addressed the position thus avoiding any penalty.”
HMRC’s submission[25]In relation to reasonable excuse, HMRC submit that, having received two messages that the online filing had failed, a prudent person would have made enquiries with the HMRC Online Services Helpdesk or checked their own internal records to ascertain why they had been sent these messages. AGL had thus not shown that it had taken all reasonable steps to ensure that the return was received by the due date.[26]In relation to the penalty, HMRC say that these are prescribed by statute, and that they are not bound to follow any statutory timetable for the giving of reminders to those who have not met their obligations. Discussion and decision on reasonable excuse The position of the accountant[27]The mandatory requirements for submitting a P35 state that the return must include “the tax year to which the return relates”. This requirement was not met by AGL.[28]Online filing operates automatically, so entering the wrong year meant that the HMRC system was unable to process the return. The fact that the rest of the data correctly related to 2009/10 was thus not in point: the return was not filed.[29]AGL received a fail notice when it first tried to file the P35 at 17.27 on 12 April, and another at 18.25. At 18.29 the HMRC system told AGL that the reason for the second failure was that a submission had already been received. AGL thus assumed that the first attempt at filing the return had succeeded, despite the fail message.[30]AGL states that the cause of the mistake was a “software glitch”. The Tribunal was provided with no further evidence as to the nature or extent of this “glitch” - for instance, whether it affected other accountants, and other clients of this accountant? Could it have been an input error rather than a software error? Without further evidence, I do not make any finding of fact as to the reason for the error.[31]HMRC provide a help desk for taxpayers and agents who have questions about, and problems with, their online filing. Had AGL called the helpline to check whether the return had in fact been submitted, despite the receipt of two fail messages, the real reason for the rejections would have been discovered. Calling the helpline would have been a reasonable and sensible course to take. This is the position, whatever the cause of the error.[32]The test I have to apply is whether the actions taken by the taxpayer amount to a reasonable excuse, and I find that the AGL’s failure to check with HMRC as to the reasons for the reject messages means that entering the wrong year into the computer does not constitute a reasonable excuse for not filing Time Together’s P35. The position of the taxpayer[33]The taxpayer is, however, not AGL but Time Together. I have thus also considered whether that company has a reasonable excuse because it relied on its agent, AGL, to file its returns.[34]Reliance on a third party agent has been held to provide a reasonable excuse ( Rowland v HMRC [2006] STC (SCD) 536 ). Rowland involved a “difficult and complex area of tax law”, including “the arcane matters of film finance partnerships”. A similar decision was reached in The Research and Development Partnership Ltd v HMRC [2009] UKFTT 328 (TC) , which concerned complicated questions of research and development tax credits.[35]This Tribunal has taken a different view in more straightforward cases (see, for example, Richfield Fashion [2010] TC 00957). In The Research and Development Partnership the judge said that when considering whether reliance on a third party constitutes a reasonable excuse “it is proper to have regard to the nature of the task.”[36]In the instant case a simple mistake was made. This could have been rectified had the agent contacted HMRC to check the position. The situation is not analogous to Rowland. Time Together’s reliance on AGL as agent thus does not constitute a reasonable excuse. Discussion and decision on the penalty[37]The penalty notice was issued on September 21 2010. Four months had passed since AGL’s mistake, and four penalties of £100 had accumulated. No earlier notice was issued, either on April 21 or at any other time.[38]When AGL was informed of its error, and told that it was necessary to refile the P35, it carried out this task immediately. AGL say in their letter of 16 December 2010, that had they been told of the mistake in April, they would have rectified it before any penalty had arisen. I accept this: had HMRC informed AGL of the mistake at an earlier point, I am sure it would have been remedied straight away.[39]A £400 penalty could thus be seen as unfair. This case is not one where the taxpayer or his agent has knowingly delayed compliance with an obligation.[40]However, it is also important to see the penalty provisions in the wider context of the efficient operation of the tax system. The information from the P35s forms a significant element in HMRC’s operation of that system. The fixed penalty provisions are deliberately designed to deter late filing, and to encourage a high level of care from those inputting data into the system.[41]In any event, the Tribunal has no discretion to reduce the penalty unless it is incorrect. Here, the P35 was not filed for over four months, so the £400 penalty is correct.[42]Having found that there was no reasonable excuse and that the penalty is correct, I confirm the penalty and dismiss the appeal.[43]This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. Anne Redston PRESIDING MEMBER RELEASE DATE: 6 APRIL 2011