[2011] UKFTT 362 (TC)

TC01217

Appeal number: TC/2011/01059

P35 return—Penalty for late return (Taxes Management Act 1970 s.98A)—Reasonable excuse—Appeal dismissed

FIRST-TIER TRIBUNAL

TAX

HOAR CROSS PARISH COUNCIL Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

TRIBUNAL: DR CHRISTOPHER STAKER (TRIBUNAL JUDGE) IAN ABRAMS (TRIBUNAL MEMBER)

The Tribunal determined the appeal on 6 May 2011 without a hearing 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 8 February 2011, and HMRC’s Statement of Case submitted on 2 March 2011.

DECISION

Introduction

1. The Appellant appeals against a £206 penalty imposed in respect of the late filing of its P35 employer’s annual return for the tax year 2009/10.

The relevant legislation

2. Regulation 73(1) of the Income Tax (Pay As You Earn) Regulations 2003 imposes on an employer the obligation to deliver to HMRC a P35 return before the 20th day of May following the end of a tax year. Paragraph (10) of that regulation provides that Section 98A of the Taxes Management Act 1970 (the “TMA”) applies to paragraph (1) of that regulation.

3. Section 98A of the TMA relevantly provides as follows:

(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, ...

4. Section 100(1) of the TMA authorises HMRC to make a determination imposing a penalty under s.98A of the TMA in such amount as it considers correct or appropriate. Section 100B of the TMA provides for an appeal against the determination of such a penalty. Section 100B(2)(a) provides that in the case of a penalty which is required to be of a particular amount, the 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.

5. Section 118(2) of the TMA provides as follows:

(2) For the purposes of this Act, a person shall be deemed not to have failed to do anything required to be done within a limited time if he did it within such further time, if any, as the Board or the tribunal or officer concerned may have allowed; and 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.

The arguments of the parties

6. The notice of penalty determination dated 20 September 2010 states that the Appellant did not file its P35 return for the year 2009/10 by 19 May 2010, that the penalty under the legislation was £100 per month for every 50 (or up to 50 employees), that the statutory penalty was accordingly £400, but that the penalty can be mitigated to the total amount of the PAYE, NI and student loan deductions for the year, so that the penalty in this case was reduced to £206.

7. An internal HMRC review of the penalty determination dated 10 January 2011 stated that the HMRC Online Services Team state that there was no online submission of the P35 return until 15 September 2010, and attached a printout from the HMRC computer system. The internal review did not accept the Appellant’s explanation for the late submission.

8. The Appellant’s case is that the return was submitted on-line in good faith within the deadline, but that due to some malfunction in HMRC’s systems HMRC failed to capture it or even record its receipt. The Appellant’s grounds of appeal add that: “The appellant’s clerk, who submitted the return, cannot say one way or the other whether an automated acknowledgement was received from HMRC, although there is now nothing on her computer, she considers it possible that she might have deleted it. Certainly, had there been any doubt in her mind that she had indeed correctly submitted the return then of course she would have contacted HMRC to check, and the fact that she did not is further evidence of her believing, in good faith, that she had indeed filed the return.” The Appellant adds that the fact that HMRC records do not record receipt of the return does not mean that it was not sent, that the matter is therefore not free from doubt, and that the Appellant should be given the benefit of the doubt. A reply from the Appellant dated 29 March 2011 adds that computer systems are fallible, and that while HMRC can say what should have happened, “HMRC cannot tell us for sure what did happen on this particular occasion”.

9. In the papers was also a letter from the clerk to the Appellant stating that the return was submitted by 19 May 2010, that “I recall that a message flashed up on screen that the submission was successful”, that because of this “I attached no significance to the fact that I received no confirmatory e-mail”, that “The current Chairman of [the Appellant] can confirm that I told her at the time that I had submitted the return”, that until the penalty notice was received some 4 months later the Appellant was under the impression that the return had been received, that the former clerk to the Appellant had experienced problems receiving e-mails from HMRC and that the penalty is disproportionate given that the Appellant has in fact overpaid tax.

10. The HMRC statement of case argues that under the relevant legislation, it is mandatory to deliver the 2009/10 return online, that if not submitted online by 19 May 2010 a penalty will apply, that HMRC is not obligated to issue reminders but that all employers were in fact sent an Employer Pack in February 2010 explaining employers’ responsibilities, that submission of the return online is a straightforward process and that “context sensitive help” is available, and that the Appellant successfully submitted returns online in previous years. The statement of case adds that the HMRC website gives clear instructions for filing online and what to expect if the submission is successful. It states that if submission is successful, a confirmation message is sent, usually within a minute of filing, and that if the submission is rejected, a message will also be sent.

The Tribunal’s view

11. The Tribunal must determine questions of fact on the evidence before it on the basis of the balance of probability.

12. The Tribunal finds that an employer does not discharge the responsibility to submit a return merely by seeking in good faith to submit a return online, if the return is not received by the HMRC computer system.

13. On the evidence before it, the Tribunal considers it improbable that the HMRC system would receive a return without generating a confirmation message, and without the system recording that the return had been received.

14. On the evidence before it, the Tribunal is satisfied that no return was received by the HMRC system within the deadline. The Tribunal is also satisfied on a balance of probability that no confirmation was sent by the system. Despite the evidence of the clerk to the Appellant in the letter dated 19 May 2010 that “I recall that a message flashed up on screen that the submission was successful”, the Tribunal considers it improbable that this occurred in all of the circumstances.

15. The Tribunal therefore finds that the return was not submitted by the deadline.

16. On its consideration of the evidence, the Tribunal considers that even if the Appellant did attempt in good faith to submit the return online within the deadline, this attempt was unsuccessful, and that the HMRC computer systems are designed to make it obvious to users whether the submission of a return has been successful or not. The Tribunal finds on a balance of probabilities that if an attempt was made by the Appellant to submit a return online within the deadline, it should have been apparent to the Appellant at the time that the attempt had been unsuccessful. The Tribunal therefore finds that a reasonable excuse for the late submission has not been established.

17. The Tribunal is satisfied that the penalty imposed is in the correct amount.

Conclusion

18. It follows that this appeal must be dismissed, and the penalty determination confirmed.

19. 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.

First-tier Tribunal (Tax)