[2013] UKFTT 192 (TC)
TC02607
Appeal number:
TC/2012/06857
PAYE –appeal against the
penalty imposed for the late payment of PAYE- Schedule 56 Finance Act 2009- HMRC
publicity regarding new regime and penalty warning letter sent to wrong address
– appeal allowed in part
FIRST-TIER TRIBUNAL
TAX CHAMBER
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HEIRTRACE
LIMITED
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Appellant
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- and -
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THE
COMMISSIONERS FOR HER MAJESTY’S
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Respondents
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REVENUE &
CUSTOMS
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TRIBUNAL:
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JUDGE SANDY RADFORD
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HELEN MYERSCOUGH
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Sitting in public at Norwich on 27 November 2012
Mrs Higgins, Managing Director
of the Appellant, for the Appellant
Mr Foster, officer of HMRC,
for the Respondents
© CROWN COPYRIGHT
2013
DECISION
1.
This is an appeal against the penalty of £2,276.76 imposed for the late
payment of PAYE for every month of the tax year 2010/11.
2.
The penalty was originally £2,514.91 but was recalculated due to the
decision in the Agar case.
Legislation
3.
Penalties for the late payment of monthly PAYE amounts were first
introduced for the tax year 2010/11. The legislation is contained in Schedule
56 to the Finance Act 2009 (“Schedule 56”). Schedule 56 covers penalties for
non- and late payment of many taxes: paragraph 1(1) (which applies to all
taxes) states that a penalty is payable where the taxpayer fails to pay the tax
due on or before the due date.
4.
Paragraph 6 (which relates only to employer taxes such as PAYE) states
that the penalty due in such a case is based on the number of defaults in the
tax year, though the first default is ignored. The amount of the penalty
varies as provided by sub-paragraphs (4) to (7):
(4)
If P makes 1, 2 or 3 defaults during the tax year, the amount of the penalty is
1% of the amount of tax comprised in the total of those defaults.
(5)
If P makes 4, 5 or 6 defaults during the tax year, the amount of the penalty is
2% of the amount of tax comprised in the total amount of those defaults.
(6)
If P makes 7, 8 or 9 defaults during the tax year, the amount of the penalty is
3% of the amount of tax comprised in the total amount of those defaults.
(7)
If P makes 10 or more defaults during the tax year, the amount of the penalty
is 4% of the amount of tax comprised in those defaults.
In this and other paragraphs of Schedule 56 “P” means a
person liable to make payments.
5.
Under paragraph 11 of Schedule 56 HMRC is given no discretion over
levying a penalty:
11(1) Where P is liable to a
penalty under any paragraph of this Schedule HMRC must –
(a)
assess the penalty,
(b)
notify P, and
(c)
state in the notice the period in
respect of which the penalty is assessed.
(3)
An assessment of a penalty under any paragraph of this Schedule—
(a)
is to be treated for procedural purposes in the same way as an assessment to
tax (except in respect of a matter expressly provided for by this Schedule),
(b)
may be enforced as if it were an assessment to tax, and
(c)
may be combined with an assessment to tax.
6.
Paragraphs 13 to 15 of Schedule 56 deal with appeals. Paragraph 13(1)
allows an appeal against the HMRC decision that a penalty is payable and
paragraph 13(2) allows for an appeal against the amount of the penalty.
Paragraph 15 provides the Tribunal’s powers in relation to an appeal which is
brought before it:
(1)
On an appeal under paragraph 13(1)
that is notified to the tribunal, the tribunal may affirm or cancel HMRC’s
decision.
(2)
On an appeal under paragraph 13(2)
that is notified to the tribunal, the tribunal may-
(a)
affirm HMRC’s decision, or
(b)
substitute for HMRC’s decision
another decision that HMRC had the power to make.
(3)
If the tribunal substitutes its
decision for HMRC’s, the tribunal may rely on paragraph 9-
(a)
to the same extent as HMRC…[…],or
(b)
to a different extent, but only if
the tribunal thinks that HMRC’s decision in respect of the application of
paragraph 9 was flawed.
7.
Paragraph 9 (referred to in paragraph 15) states:
(1)
If HMRC think it right because of special circumstances, they may reduce the
penalty under any paragraph of this Schedule.
(2)
In sub-paragraph (1) “special circumstances” does not include –
(a) ability
to pay, or
(b) the
fact that a potential loss of revenue from one taxpayer is balanced by a
potential over-payment by another.
(3)
In sub-paragraph (1) the reference to reducing a penalty includes a reference
to-
(a) staying
a penalty, and
(b) agreeing
a compromise in relation to proceedings for a penalty.
8.
Paragraph 16 contains a defence of reasonable excuse, but an
insufficiency of funds is not a reasonable excuse unless attributable to events
outside P’s control. Nor is it such an excuse where P relies on another person
to do anything unless P took reasonable care to avoid the failure; and where P
had a reasonable excuse for the failure but the excuse has ceased, P is to be
treated as having continued to have the excuse if the failure is remedied without
unreasonable delay after the excuse has ceased.
Background and facts
9.
Mrs Higgins confirmed that the appellant had made its PAYE payments late
each month. This was largely as a result of the appellant’s cash flow problems
but Mrs Higgins stated that if she had been aware of the penalty regime she
could have made alternative arrangements with the appellant’s bank to provide
overdrafts to cover the cash flow.
10.
The appellant’s cash flow problems were caused by its biggest client,
which provided some 70% to 80% of the appellant’s business, starting to pay
late.
11.
Mrs Higgins stated that the appellant had not received the Employer
bulletins and CD Roms detailing the new regime because they had been sent to
the appellant’s agent, Mr Adams, who only attended the appellant for a few
hours once a month to deal with the management accounts and who in any event
denied receiving the material.
12.
The previous owner of the business had set up the account with HMRC and
must have asked for any HMRC information to be sent to Mr Adams.
13.
Mrs Higgins produced a copy of the letter dated 1 December 2008 which was sent to HMRC informing HMRC of the appellant’s new contact details. However
despite this letter HMRC continued to send information to Mr Adams.
14.
Mrs Higgins disputed HMRC’s contention that it was unable to contact the
appellant by telephone on six different occasions as the appellant has eight
telephone lines all coming into the same number and has never in the past had
any experience of someone not being able to get through on so many occasions.
In fact a key aspect of the business was to be contactable if anyone should
call.
15.
The appellant had also not received the penalty warning letter dated 28 May 2010 which was also sent to Mr Adams at The Cottage, Garlic Street.
16.
P101 warning letters were issued to the appellant except for months 1,
3, 4 and 5.
17.
In August 2011 the appellant had a specific visit by an HMRC inspector
to ask why the PAYE was late. The inspector explained when the PAYE was due but
did not discuss the penalty regime. The HMRC officer contended that the PAYE
had not been paid for two months but in fact it was discovered that two months
before the appellant had started paying the PAYE by BACS and had not put the
correct reference number so the wrong account had been credited.
18.
On 29 November 2011 the appellant was issued a penalty notice by HMRC in
amount of £2,514.91 and on 12 December 2011 the appellant appealed to HMRC against
the penalty.
19.
On 4 April 2012 HMRC replied refusing the appellant’s appeal on the
basis that the appellant had no reasonable excuse for the late payment of the
PAYE.
20.
The appellant sought an internal review the conclusion of which was that
the penalty should be upheld. However the review did not acknowledge that both
the Employers Bulletin and the penalty warning letter had been sent to the
wrong address, noting only that as these were not returned undelivered the
appellant must have received them.
Appellant’s submissions
21.
Mrs Higgins submitted that the appellant had not been informed of the
new regime as despite her informing HMRC of the new contact details, the
information together with the penalty warning notice dated 28 May 2010 had been sent to Mr Adams.
22.
She submitted that the penalty was disproportionate and any reference by
HMRC to the case of Rodney Warren & Co was not relevant as in that
case the appellant was aware of the new regime.
23.
She submitted that if the appellant had been informed of the penalties
earlier it would have made arrangements with its bank for an overdraft.
HMRC’s submissions
24.
Mr Foster submitted that the penalty was not disproportionate. He
submitted that the legislation is clear. If a PAYE payment is made late even by
one day then in accordance with paragraph 11 of the Schedule HMRC must impose a
penalty the rate of which is dictated by the number of late PAYE payments.
25.
He submitted that P101 warning letters had been issued to the correct
address and so the appellant should have been aware that it was paying late.
26.
He submitted that as to the appellant’s submission that the penalty was
disproportionate, in the case of Dina Foods Ltd Foods [2011] UKFTT 709 (TC) Judge Berner stated at paragraphs 41 and 42:
“41. The issue of proportionality in this context is
one of human rights, and whether, in accordance with the European Convention on
Human Rights, Dina Foods Ltd could demonstrate that the
imposition of the penalty is an unjustified interference with a
possession. According to the settled law, in matters of taxation the
State enjoys a wide margin of appreciation and the European Court of Human
Rights will respect the legislature’s assessment in such matters unless it is
devoid of reasonable foundation. Nevertheless, it has been recognised
that not merely must the impairment of the individual’s rights be no more than
is necessary for the attainment of the public policy objective sought, but it
must also not impose an excessive burden on the individual concerned. The
test is whether the scheme is not merely harsh but plainly unfair so that,
however effectively that unfairness may assist in achieving the social
objective, it simply cannot be permitted.
42. Applying this test, whilst any penalty may be
perceived as harsh, we do not consider that the levying of the penalty in this
case was plainly unfair. It is in our view clear that the scheme of the
legislation as a whole, which seeks to provide both an incentive for taxpayers
to comply with their payment obligations, and the consequence of penalties
should they fail to do so, cannot be described as wholly devoid of reasonable
foundation. We have described earlier the graduated level of penalties
depending on the number of defaults in a tax year, the fact that the first late
payment is not counted as a default, the availability of a reasonable excuse
defence and the ability to reduce a penalty in special circumstances. The
taxpayer also has the right of an appeal to the Tribunal. Although the
size of penalty that has rapidly accrued in the current case may seem harsh,
the scheme of the legislation is in our view within the margin of appreciation
afforded to the State in this respect. Accordingly we find that no
Convention right has been infringed and the appeal cannot succeed on that
basis.”
27.
Mr Foster submitted that as enunciated in the case of Dina Foods
the PAYE legislation did not require HMRC to issue warnings to individual
employers.
28.
He submitted that the Upper Tribunal had recently found for HMRC in the
case of Hok. In making their decision the Upper Tribunal found that the
First-tier Tribunal’s finding, that HMRC’s failure to send a prompt warning was
unfair, was unsustainable.
Findings
29.
Mrs Higgins appeared to us to be an efficient and competent
businesswoman. We accepted her statement concerning the lack of phone calls from
HMRC and we found her evidence to be truthful.
30.
We found that despite the publicity surrounding the new penalty regime
she had not received the material which together with the penalty warning
notice, despite her provision of the appellant’s new details to HMRC, had been
sent to the agent who only attended the appellant for a few hours each month.
31.
We accepted that she had no knowledge of the new regime and that if she
had known she could have made arrangements with her bank to pay the PAYE by the
due date.
32.
However we found that ignorance of the law is not a reasonable excuse
and as a competent business woman, by the time of HMRC’s visit in August 2010,
she ought to have made further enquiries as to why it was so important to pay
the PAYE on time.
33.
We found therefore that the appellant had a reasonable excuse for the
late payment by reason of the lack of phone calls from HMRC and the publicity
material and warning letter being misdirected up to and including the payment
due for month 4.
34.
We found that the penalty was not disproportionate as it had been
imposed in strict accordance with the Schedule.
Decision
35.
The appeal is allowed in part and the penalty imposed in respect of the
first four months is hereby cancelled. The payment due on 19 September 2010 for month 5 will therefore become the first default and not count towards the
penalty. The penalty in respect of months 6 to 11 is hereby confirmed.
36.
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.
SANDY
RADFORD
TRIBUNAL JUDGE
RELEASE DATE: 20 March 2013
