[2010] UKFTT 638 (TC)

TC00877

Appeal number: TC/2010/00836 

Penalty for late submission of employers’ end of year return – Whether reasonable excuse – No – Appeal dismissed

FIRST-TIER TRIBUNAL

TAX 

	LA MANCHA LIMITED	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

		TRIBUNAL: 	JOHN BROOKS (TRIBUNAL JUDGE)									

The Tribunal determined the appeal on 28 October 2010 under the provisions of Rule 26 of the Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009 (default paper cases) having first read the Notice of Appeal dated 29 December 2009, HMRC’s Statement of Case submitted on 12 February 2010 and the Appellant’s Reply dated 2 March 2010.

© CROWN COPYRIGHT 2010

DECISION

1.	This is an appeal by La Mancha Limited (the “Company”) against a penalty of £500 imposed under s 98A Taxes Management Act 1970 (“TMA”) for the late submission of an Employers’ Annual Return for 2008-09.
2.	The appeal was allocated to the default paper category. Having considered the papers provided by both parties, a Decision Notice dismissing the appeal and containing a summary of the Tribunal’s findings of facts and reasons for the decision was released on 29 October 2010. Following receipt of the Decision Notice the Company’s accountants, Accountancy-4-U (the “Accountants”), wrote to the Tribunal on 9 November 2010 stating that “we wish to appeal against this decision and therefore request full written findings and reasons.”
Evidence 
3.	The evidence before the Tribunal was contained in the following documents:
(1)	The Company’s Notice of Appeal dated 29 December 2009.
(2)	The following documents sent with the Notice of Appeal:
(a)	penalty determination dated 28 September 2009;
(b)	penalty determination dated 8 October 2009;
(c)	HMRC letter dated 6 November 2009;
(d)	HMRC letter dated 19 November 2009;
(e)	HMRC letter dated 21 December 2009;
(f)	Accountants letter dated 20 November 2009; and
(g)	copy of late payment reminder issued within 8 days of due date.
(3)	HMRC’s Statement of Case submitted on 12 February 2010.
(4)	The following documents attached to HMRC’s Statement of Case:
(a)	original appeal letter to HMRC;
(b)	HMRC view of appeal and offer of review;
(c)	review conclusion letter; and 
(d)	relevant correspondence between the parties.
(5)	The Appellant’s Reply dated 2 March 2010.
Facts
4.	From these documents I find the following facts.
5.	The Company was required to submit an Employers’ Annual Return for 2008-09 by 19 May 2009. 
6.	On 28 September 2009, as the return had not been received, HMRC issued a Penalty Notice which stated that an end of year return was required by 19 May 2009; that penalties are £100 for each month (or part month) for every 50 (or up to 50 employees); that penalties have been charged from 20 May 2009 to 19 September 2009; and that the statutory penalties were £400.
7.	Following receipt of the Penalty Notice the Company’s return was filed online on its behalf by the Accountants on 5 October 2009. A further Penalty Notice was issued by HMRC on 8 October 2009 in respect of the period from 20 September to 5 October 2009.
8.	The Accountants appealed to HMRC on behalf of the Company on 5 October 2009. The letter explained that they “file all our PAYE clients online and we submit all details and cannot understand how this return was missed.” The letter also raised the issue of reminders from HMRC contending that had a reminder been received earlier the omission would have been discovered at that time and the penalty would have been less. Although this appeal was not accepted by HMRC the Company did take up the offer of a review contained in HMRC’s letter of 6 November 2009.
9.	The Company was notified of the outcome of the review, upholding the decision of HMRC to impose the penalty, by a letter from HMRC dated 21 December 2009. On 29 December 2009 the Company appealed to the Tribunal.
Law
10.	Section 98A TMA provides that “any person who fails to make a return [under the PAYE Regulations] shall be liable to a penalty of the relevant monthly amount for each month (or part of a month) during which the failure continues.” A determination imposing a penalty under s 98A TMA may be made by HMRC under s 100(1) TMA “setting it at such amount as … is correct.” 
11.	Notice of a determination “shall be served on the person liable to the penalty and shall state the date on which it is issued and the time limit within which an appeal against the determination may be made.” (s 100(3) TMA).  
12.	Section 118(2) TMA which, 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.”
13.	There is no definition in the legislation of a “reasonable excuse” which “is 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]).
Submissions
14.	The Company’s grounds of appeal, prepared on its behalf by the Accountants, are as follows:
We submit all our PAYE returns etc. electronically to comply with HMRC and have done so for the last four years, but this one clients’ PAYE Year End Return was unfortunately missed by our filing software. As soon as this was realised, by the issue of the penalty of £400 for four months in September 2009, it was immediately submitted electronically. We then received a further £100 penalty for the additional month.
Unbeknown to us, as we have never failed to electronically submit on time, HMRC apparently do not issue any reminders for Year End Forms but do issue reminders if there is a late payment, this is gross inefficiency on HMRC as no penalty notices are issued until September and therefore the minimum penalty has to be £500. As the penalties are charged for each month, the HMRC have a duty of care to issue the penalties notices after the first failure. It cannot be acceptable that their excuse [as stated in correspondence] is that there are hundreds of thousands of employers and they cannot issue reminders and then delay issuing the penalty notices until September. If they can issue reminders for any late or missed PAYE payments within eight days of the late or missed payment then their same software knows that the return is outstanding and their failure to accept our appeal on the grounds that we have no reasonable excuse, when their own excuse for not issuing reminders is also not a valid excuse. 
We therefore feel that the maximum penalty can only be £100.
15.	In the Reply to HMRC’s Statement of Case, the Accountants refer to HMRC’s guidelines which state “you will receive further penalty notices in September and again the following January and May if necessary” and that “these penalties will be calculated the same way as the first one.” The Accountants contend that “the very mention that there must be a first one issued before further penalty notices are issued in September clearly renders the first penalty notice in September ineffective.” They submit that as these are monthly penalties HMRC “must issue the first penalty notice for £100 before they can issue any further penalty notices.”
16.	HMRC, in their Statement of Case, refer to the fact that they have no statutory obligation to issue reminders for Employers’ End of Year Returns and contend that, as their website advises filing these returns by the appropriate deadlines and states “HMRC will not necessarily send you a reminder to file these forms”, the Company does not have a reasonable excuse and requests that the appeal be dismissed. 
Discussion and Conclusion
17.	It should be noted that the Tribunal has to apply the applicable legislation and not the guidance from HMRC. Section 98A TMA provides that any person who fails to make a return under the PAYE Regulations “shall” be liable to a penalty of “the relevant monthly amount” for each month (or part of a month) during which the failure continues. It is not disputed that the Company’s return for 2008-09 was submitted after the due date of 19 April 2009 and that the “relevant monthly amount” in this case is £100. Therefore, as the return was filed on 5 October 2009, four complete months and a part of month late, it must follow that the applicable penalty under the legislation is £500.
18.	I do not accept the argument of the Accountants that the maximum penalty can only be £100 as there is no requirement on HMRC to issue a Penalty Notice after one month’s failure to submit a return. Under s 100(1) TMA HMRC “may” make a determination imposing a penalty under any provision of the Taxes Acts “setting it at such amount as … is correct.” While this clearly includes a penalty under s 98A TMA (s 118(1) TMA) it does not impose a requirement on HMRC to make a determination after the first failure. For the same reason I also reject the contention, which seeks to strictly interpret HMRC’s guidance as if it were legislation, that the Penalty Notice issued in September 2009 is ineffective. 
19.	Therefore, unless the Company had a reasonable excuse for the failure to submit the return on time, and the return was filed without unreasonable delay after the excuse had ceased, the penalty must stand. 
20.	The grounds of appeal refer to the Company’s return being “unfortunately missed” by the Accountant’s filing software but as this appears to have only applied to “this one client” I do not consider, in the absence of any further evidence, that this amounts to a reasonable excuse and, to be fair, note that this has not been advanced as such. Rather it has been contended that the Company has a reasonable excuse as a result of HMRC’s failure to remind it to file its Employers’ Annual Return. However, as there is no obligation for HMRC to issue a reminder I do not consider that this can amount to a reasonable excuse.
21.	The appeal is therefore dismissed and the penalty confirmed.
22.	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.

JOHN BROOKS

TRIBUNAL JUDGE
RELEASE DATE: 10 DECEMBER 2010