TC00957

Appeal reference: TC/2010/02220

INCOME TAX – failure to file P35 Return on time – penalty imposed – reasonable excuse – no – appeal dismissed

FIRST- TIER TRIBUNAL
TAX

   	RICHFIELD FASHION CO. LTD			Appellant

- and -

				    THE COMMISSIONERS FOR
			HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

Tribunal: 	Jennifer Trigger (Judge)

Sitting in public in Colwyn Bay on 15 July 2010

The tribunal determined the appeal without a hearing under the provisions of Rule 26 of the Tribunal Procedure (First-Tier Tribunal) (Tax Chamber) Rules 2009.

© CROWN COPYRIGHT 2011

DECISION

1.	This is an appeal by Richfield Fashion Co. Ltd (“the Appellant”) against an assessment to a penalty for the late receipt of the 2008 / 2009 P35 Return (“the Return”).  The penalty imposed was £600.  The penalty was imposed by the Commissioners of Her Majesty’s Revenue and Customs (“the Commissioners”) under the Taxes Management Act 1970, section 90A(2)(a) as the Return was not outstanding for a period in excess of twelve months.

2.	In the Statement of Case served on 18 March 2010, the Commissioners set out the grounds upon which they made their decision to impose a penalty on the Appellant.  The filing date for the Return was 19 May 2009.  On 28 September 2009 the Return had not been received.  Accordingly the Commissioners issued an interim penalty type 2 notice in the sum of £400.  The Commissioners had imposed a penalty of £100 for each of the following four months:

20 May 2009 - 19 June 2009

20 June 2009 – 19 July 2009

20 July 2009 – 19 August 2009

20 August 2009 – 19 September 2009

The Return was received online on 28 October 2009.

On 2 November 2009 the Commissioners issued a final penalty type 4 notice in the sum of £200.  This was £100 for each month (or part of month) for two months as follows:

	20 September 2009 – 19 October 2009

	20 October 2009 – 28 October 2009

3.	On 5 October 2009 the Appellant’s agent, P. Spyrou & Co. (“the Agent”), appealed the first penalty of £400.  The grounds of the appeal were that the Return was submitted successfully by the Agent on 30 April 2009.  The Agent provided to the Commissioners a submission receipt (“the Receipt”).

4.	On 7 October 2009 the Commissioners wrote to the Agent to advise that the Receipt was for a Starter, Leaver or Pension notification and that no receipt for the Return had been supplied.

5.	On 13 October 2009 the Agent advised the Commissioners that he could not locate a receipt for the Return and requested that the Commissioners confirm whether they had any record of the submission of the Return.

6.	By 17 October 2009 the Agent had investigated the matter in more detail.  The Agent confirmed that the Return had not been submitted and that matter had been rectified on 17 October 2009 when the Return was filed online.

7.	The Agent considered that there was a reasonable excuse for failure to file the Return by 19 May 2009.  Neither the Appellant nor the Agent were aware that the Commissioners had not received the Return until a penalty determination was issued by the Commissioners on 28 September 2009.  On behalf of the Appellant the Agent submitted that the Appellant had completed an internet filing summary signed on 23 April 2009 by Mr. N Christon, a director of the Appellant.  A copy of this document was produced by the Agent and was before me.  The Agent had assumed that as he was in possession of this document from the Appellant it had been processed together with similar documents from other employer clients in or around 11 or 12 May 2009.  The Agent maintained that every effort had been taken to ensure that the Return was with the Commissioners by 19 May 2009 and that the failure by the Agent to file the Return on time was a rare and regrettable occurrence.

8.	Further correspondence passed between the Agent and the Commissioners in which the Commissioners confirmed on 24 November 2009 that the earliest submission of the Return recorded was 28 October 2009.  The Agent responded on 7 December 2009, making similar points to those raised in previous correspondence and making the additional point that the receipt of the penalty notice four months after 19 May 2009 prevented either the Appellant or the Agent from taking any action to either avoid the penalty accruing or to minimise the penalty.

9.	In response the Commissioners replied on 20 January 2010.  The penalty was upheld and the Commissioners decided that the Agent’s mistake in not filing the Return on time did not amount to reasonable excuse.  On 18 February 2010 an appeal was lodged by the Agent.

10.	Turning to the law I was referred to the requirement for employers and contractors respectively to render returns of sums deducted within 44 days of the end of the tax year, that being 19 May in any tax year.  The legislation is to be found in the Taxes Act 1988, section 203(2) and section 566(1).  The law governing the imposition of penalties is governed by the Taxes Management Act 1970 (“the 1970 Act”).  The legislation that is relevant for the purposes of this appeal is section 98A; section 98A(2)(a); section 100; section 118(2) Part 11 section 113; Schedule 3A Part 111(5) thereof, all of which I considered.  In accordance with the 1970 Act automatic penalties are chargeable where returns are not received by the statutory filing date.  In the present case the statutory filing date was 19 May 2009.  Interim penalties are chargeable under 98A(2)(a) of the 1970 Act when a return remains outstanding after the due date.  The Return was outstanding after 19 May 2009.  Different penalty types are associated with interim penalties and the inclusive dates covered as follows:

Outstanding From			To				Penalty Type

20 May				19 September			2

20 September				19 January 			3

20 January				19 May			3

11.	Final penalties are also chargeable under section 98A(2)(a) of the 1970 Act.  These are chargeable when a return is received.  The penalty types assigned to final penalties and the inclusive dates covered are as follows:
Return Received			To				Penalty Type

20 May 				19 September			1

20 September				19 May			4

12.	The Appellant incurred interim penalty notices of type 2 and final penalty notices of type 4, which amounted in total to £600.

13.	As an employer the Appellant was under a duty imposed by the 1970 Act to deliver the Return by 19 May 2009.  The law places the responsibility on the employer and accordingly the responsibility was that of the Appellant.  It was the Appellant’s case that the failure to submit the Return by 19 May 2009 was a failure by the Agent who had formed an incorrect but genuine belief that the Return had been filed on time.  Furthermore that the process by which penalty notices were issued was unfair in that there was no opportunity to ascertain in a timely fashion whether the Return had been filed, or filed late, so as to mitigate the Appellant’s loss.  The Appellant contended that he had demonstrated a reasonable excuse and that the late filing of the Return was caused by the Agent and that the Appellant had done all that was required of him by providing the necessary information to the Agent on 23 April 2009.  In the alternative the Appellant asked the Commissioners to exercise their discretion and reduce the total penalty payable to £100, which would be in keeping with a penalty imposed for the late submission of a self-assessment return.

14.	Having considered the Commissioners’ Statement of Case, the Appellant’s Notice of Appeal, and the law, I made the following findings of fact:

•	The filing date for the Return was 19 May 2009.
•	The Return had not been received by the Commissioners on 28 September 2009.
•	Interim type 2 notices were issued by the Commissioners to the Appellant for £400.  This covered the period 20 May 2009 to 19 September 2009 inclusive.
•	The Return was received online on 28 October 2009.
•	The period of default was from 19 May 2009 to 28 October 2009.
•	On 2 November 2009 the Commissioners issued to the Appellant a final penalty type 4 notice for £200 for the period 20 September 2009 to 28 October 2009 inclusive.
•	The Appellant had employed the Agent to complete and submit the Return by 19 May 2009.
•	The Appellant provided the Agent with the information to complete the Return by 23 April 2009.  Thereafter the Appellant made no further enquiries of the Agent to ascertain whether the Return had been submitted by 19 May 2009.
•	The Agent failed to submit the Return by 19 May 2009.
•	The Appellant had failed to demonstrate reasonable excuse for the late submission of the Return.
•	The Commissioners were justified in not exercising their discretion to reduce either the interim penalty payable or the final penalty payable.

15.	The reasons for my decision are: the Appellant is solely responsible for filing the Return on time.  Even though the Appellant had delegated the responsibility to the Agent, the Appellant remained primarily responsible and had a duty to ensure that the Agent had done all that was required of him to complete the transaction.  There was no evidence before me that the Appellant exercised any control over the Agent.  Furthermore the Agent accepted that the late submission of the return was because of the failure by him.  I did not consider that this oversight by the Agent removed the Responsibility from the Appellant to submit the Return on time, nor did I accept that it amounted to reasonable excuse by the Appellant for the late submission of the Return.  Whilst there is no definition in the legislation of what amounts to reasonable excuse, an oversight by the Agent cannot absolve the Appellant from complying with the duty imposed upon him by the legislation to submit the Return on time if he wishes to avoid penalties accruing for failure to do so.  In my judgment carelessness or mere negligence are insufficient to rebut this primary responsibility placed upon the Appellant.  There has been no suggestion made by the Agent or the Appellant that anything more than a failure of simple administrative procedures has occurred, which has resulted in the late submission of the Return.  In considering this matter and having regard to the lower standard of proof which applies in tribunal proceedings, I decided that the Appellant had not been able to rebut the duty imposed upon him by successfully demonstrating that there existed a reasonable excuse.

16.	I noted in the evidence before me that there were inaccuracies in the evidence of the Agent.  The Agent had made an incorrect assumption that the confirmatory email from the Commissioners of 30 April 2009 demonstrated that the Agent had filed the Return before 19 May 2009.  I found that to be a surprising assertion from an agent who was a chartered certified accountant and registered auditor.  It was plain from the face of the document that it was confirmation from the receipt of Starter, Leaver and Pension notification forms.  Furthermore I noted the Agent’s assertion in the Agent’s letter of 17 October 2009 to the Commissioners that the Return had been successfully filed that day.  The Return had been filed online but was not received by the Commissioners until 28 October 2009.  No explanation had been given by the Agent for this discrepancy.  The Agent was employed because of his expertise.  I formed the view that it was not unreasonable to expect a greater degree of clarity from the Agent, who was required to exercise a high degree of care in the management of the Appellant’s affairs.  It seemed to me that the lack of clarity and attention to detail demonstrated by the agent may be symptomatic of the circumstances which led to the late submission of the return.

17.	I considered the request made the Agent on behalf of the Appellant that the Commissioners exercise their discretion and reduce the penalties levied.  I did not consider that the Commissioners should have reduced the penalty.  It was not in my judgment appropriate in all the circumstances for me to reduce the penalty levied.  In order for the law to be applied fairly and to be seen to be applied fairly, in my judgment only in exceptional circumstances should a penalty that has been levied be reduced or waived.  To do otherwise would be to remove the element of certainty.  Taxpayers should so far as is possible know what action will be taken against them by the Commissioners if they fail to comply with the legislation and submit a return on time.  Only where the circumstances are exceptional should discretion be exercised.  I did not consider that the Appellant had shown that there were any grounds to justify a reduction in the penalty imposed.

18.	For the reasons given above I dismissed the appeal.

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.

JENNIFER TRIGGER
TRIBUNAL JUDGE
Release Date: 25 January 2011