[2012] UKFTT 752 (TC)
TC02409
Appeal number:
TC/2012/05103
Penalties
for late payment of PAYE – whether reasonable excuse or other mitigating
factors – no whether payment can be reallocated – no whether penalty
proportionate – yes Appeal disallowed
FIRST-TIER TRIBUNAL
TAX CHAMBER
CLARK
WHITE PUBICATIONS LTD Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
& CUSTOMS Respondents
TRIBUNAL:
JUDGE FIONAGH GREEN
MEMBER SONIA GABLE
Sitting in public at 45 Bedford Square, London WC1 on 15 August 2012
Azadali Kanani for the
Appellant
Justin Kruyer for the
Respondents
© CROWN COPYRIGHT
2012
DECISION
Introduction
1. This is an
appeal against a penalty for late payment of PAYE for the tax year 2010-2011.
2. Following
the case of HMRC v Agar when the Tribunal ruled that the payment due in April
2011 should not be treated for the purposes of late payment penalties as a
default during the tax year 2010-2011, the recalculated penalty charge at 5
April 2011 amounted to £3,346.14, being at the rate of 4% of the total amount
of tax due in terms of the Finance Act 2009, Schedule 56, paragraph 6(7)
Facts
3. Mr
Kanani gave evidence at the hearing. His evidence was not challenged by Mr
Kruyer, appearing on behalf of HMRC. We find the material facts to be as
follows.
4. Mr Kanani is
the director of the Appellant company, Clark White Publications Limited, a
publishing company with 9 employees which started having commercial and financial
difficulties in 2006. In early 2007 administration was considered but due to
cost-cutting exercises the company was able to continue, however, there were
debts and communications with HMRC.
5. Late
payment of PAYE was not disputed by Mr Kanani.
6. Evidence
was submitted of the due date of payment for each tax month and the actual
payment dates for the tax year 2010-2011which showed a repeated pattern of late
payments.
7. The due
date for each payment was on the 19 day of each month as payment was made by
cheque using pay slips.
8. PAYE Late
Penalty Payment Warning notice was issued by HMRC to the Appellant company on
28 May 2010 alerting Mr Kanani to the fact that payment in respect of Month 1
had been received late.
9. There were
10 defaults during the tax year that counted towards the penalty. The total
amount of these defaults was £83,653.58 which was not disputed by Mr Kanani.
The default penalty is 4% of that amount.
10. The number of days late
varied between 11 and 32 days late .
11. Mr Kanani informed HMRC that
the company could not pay on time because of cash-flow problems. The company
was relying on business payments made to it in order to pay PAYE. The company
had made payments to HMRC but not on time.
12. HMRC confirmed that when
they calculated whether a payment was late or not they used a period of three
days for a cheque to clear from the date of the bank lodged payment. HMRC
recommended that companies make PAYE payments electronically and the deadlines
would then be the 22 of each month.
13. Mr Kanani had phoned the
Business Support System for advice but no arrangement to pay was offered.
Advice was given to make a payment. There was also a visit from a
representative of HMRC in 2010.
14. HMRC issued a PAYE Late
Penalty Payment Warning notice to Mr Kanani on 28 May 2010 alerting him to the
fact that his payment in respect of Month 1 had been received late.
15. Mr Kanani asked HMRC to
reduce the penalty and informed HMRC that he was contacting his member of
parliament. Mr Kanani was concerned at the time taken by HMRC for review and
the time to consider Mr Kanani’s request made on 8 November 2011 for reallocation
of the PAYE payments .
16. On 20 December 2012 HMRC
requested sight of the P32s by 12 January 2012 but these were not provided.
17. HMRC requested further time
for review on 13 December 2011 by telephone call with Mr Kanani and by letter
on 16 January 2012.
18. HMRC’s publications,
including the Employer Bulletin issued in September 2009, gave advice on how to
avoid penalties, stated clearly the dates by which payment should be made and
also provided advice that if a business was unable to pay tax on time that they
should tell HMRC as soon as possible.
19. Reference was also made to
HMRC’s publicity for the penalty regime by way of CD-ROM, their website, and
‘Agent updates’ all of which made reference to PAYE late payment penalties. The
extract from HMRC’s websites entitled ‘How to Pay PAYE/Class 1 National
Insurance Contributions’ was submitted, as well as the HMRC Budget 2009.
Legislation
20. SCHEDULE 56
Finance Act 2009 provides:
1(1)A penalty is payable by a person (“P”)
where P fails to pay an amount of tax specified in column 3 of the Table below
on or before the date specified in column 4.
Paragraphs 3 to 8 set out—
(a) the circumstances in which a penalty is
payable, and
(b) subject to paragraph 9, the amount of
the penalty.
(3) If P's failure falls within more than
one provision of this Schedule, P is liable to a penalty under each of those
provisions.
(4)In the following provisions of this
Schedule, the “penalty date”, in relation to an amount of tax, means the date
on which a penalty is first payable for failing to pay the amount (that is to
say, the day after the date specified in or for the purposes of column 4 of the
Table).
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Tax to which payment
relates
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Amount of tax payable
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Date after which penalty
is incurred
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PRINCIPAL AMOUNTS
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1
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Income tax or capital gains tax
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Amount payable under section 59B(3)
or (4) of TMA 1970
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The date falling 30 days after the
date specified in section 59B(3) or (4) of TMA 1970 as the date by which
the amount must be paid
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2
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Income tax
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Amount payable under PAYE
regulations
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The date determined by or under PAYE
regulations as the date by which the amount must be paid
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Amount of penalty: PAYE
6 (1) P is liable to a penalty under
this paragraph of an amount determined by reference to the number of
defaults in relation to the same tax that P has made during the tax year.
(2) P makes a default in relation to a
tax when P fails to pay an amount of that tax in full on or before the date
on which it becomes due and payable.
(3) But the first failure during a tax
year to pay an amount of tax does not count as a default in relation to
that tax during that tax year.
(4) If P makes 1, 2 or 3 defaults
during the tax year, P is liable to penalty of 1% of the total amount of
those defaults.
(5) If P makes 4, 5 or 6 defaults
during the tax year, P is liable to penalty of 2% of the total amount of
those defaults.
(6) If P makes 7, 8 or 9 defaults
during the tax year, P is liable to penalty of 3% of the total amount of
those defaults.
(7) If P makes 10 or more defaults
during the tax year, P is liable to penalty of 4% of the total amount of
those defaults
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Special reduction
9 (1) If HMRC think it right because
of special circumstances, they may reduce a 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.
Reasonable excuse
16 (1) Liability to a penalty under
any paragraph of this Schedule does not arise in relation to a failure to
make a payment if P satisfies HMRC or (on appeal) the First-tier Tribunal
or Upper Tribunal that there is a reasonable excuse for the failure.
(2) For the purposes of sub-paragraph
(1)—
(a) an insufficiency of funds is not a
reasonable excuse unless attributable to events outside P's control,
(b) where P relies on any other person
to do anything, that is not a reasonable excuse unless P took reasonable
care to avoid the failure, and
(c) 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 ceased.
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Issue
21. Late payment was not in
dispute and the only issues for the Tribunal was whether there should have been
reallocation of payments of PAYE as requested by Mr Kanani, whether there was
reasonable excuse for late payment, and whether there should be special
reduction and whether the penalty was disproportionate.
Submissions
22. Mr Kanani accepted that the
PAYE was due and that payments were late. Mr Kanani had told HMRC that payment
could not be made on time because of cash flow problems and that there were
exceptional circumstances because of the economic downturn and that he was trying
to keep the company afloat. He had contacted the Business Support System and
had been told to make a payment which he had done. He had explained the
difficulties to the representative of HMRC when visited in 2010. Mr Kanani
considered the penalty targeted employers and that penalties imposed were
subjective and arbitrary and that he had made every effort to pay and to reduce
the penalty. The company was a small company. Mr Kanani had contacted his
Member of Parliament, Mr Patel who had contacted HMRC and Mr Kanani thought
that the penalty would be reduced as Mr Patel had been told that HMRC would
sort it out. Mr Kanani had requested HMRC consider reallocation of PAYE
payments and that with reallocation only three payments, Month 1, 6 and 10
would have been late. It was HMRC who had delayed their response. Mr Kanani
asked for reallocation or special reduction and that there was reasonable
excuse for late payment. Mr Kanani considered that the penalty was
disproportionate.
23. Mr Kruyer submitted that the
penalty is set by statue and is graduated on the basis of the number of late
payments made. In those circumstances, the penalty cannot be deemed to be
unfair. Furthermore, the way in which the legislation applies means that it is
not possible to calculate the amount of a penalty until the end of the tax
year. By paying late there was an unfair advantage over those who paid on
time. Mr Kanani had not said that he was unaware of the penalty regime and
that HMRC had publicised the system and issued bulletins and that information
was readily available on HMRC’s website and a CD rom was issued to all
employers in February 2010. The penalty was proportionate and applied equally
to all employers. There was nothing exceptional and lack of funds could not
amount to special circumstances or reasonable excuse and that no particular
reason had been given to have caused the financial difficulty apart from the
economic downturn. PAYE payments made are accepted and allocated in good faith
and cannot be reallocated to enable a re-calculation of the penalty.
Discussion
24. We considered Mr Kanani’s
written and oral submissions carefully. We were satisfied that HMRC had
publicised the late payment penalties for PAYE extensively both prior to and
after their implementation. The legislation does not require HMRC to issue
warnings to individual employers, yet HMRC so did by issuing a letter to Mr
Kanani on 28 May 2010 alerting Mr Kanani to the fact that payment in respect of
Month 1 had been received late. No reasonable employer aware of his
responsibilities to make payments of PAYE prior to the deadline could fail to
have been aware of the information published by HMRC. In our view Mr Kanani knew
that the payments were being paid late and he accepted this in his evidence and
in his correspondence with HMRC. The reason for the late payment was because
of his difficulties in managing his business cash flow and to stay within the
lending limits set by his bank. Although Mr Kanani had contacted the Business
Payment Support Service there was no agreement for time to pay. The Employer
Bulletin CD ROM clearly states that to avoid late payment penalties an employer
must pay on time and in full.
25. The legislation on PAYE
penalties is clear. The rate is set by the number of late payments in the tax
year by the employer. There was no dispute that the PAYE payments were late
and that the penalty had been correctly raised.. HMRC correctly charged the
penalty at the set rate of 4%. The penalty can only be assessed once the total
number of late payments for a particular tax year is known. We found as a fact
that any failure by HMRC to issue regular warnings about accruing penalties
could not amount to either a reasonable excuse or special circumstance. The
payments were paid late the number of days late varying from 11 to 32. PAYE
late payment penalties are intended to encourage more employers to pay by the
due date.
26. The legislation specifically
provides that special circumstances do not include the ability to pay.
27. There were no exceptional circumstances
which could amount to a reasonable excuse for the late payments. A reasonable
excuse is something exceptional that could not be predicted and which is
outside of the employer’s control. A lack of funds is not a reasonable excuse
unless the shortage is due to unforeseeable events outside of the employer’s
control and there was no evidence of this. Mr Kanani had paid late because of
cash flow difficulties and because of the economic downturn. Mr Kanani had not
done all that he reasonably could to make sure that payments were made on time.
There were no specific reasons put forward by Mr Kanani relating to each of the
late payments, only the general reason of lack of funds.
28. As to the reallocation, we
decided that the payments cannot be reallocated simply to enable a
re-calculation of the penalty and that there was no evidence that at the time
the payments were made they were intended to be allocated to the months stated
in the reallocation request.
29. As to the issue of
proportionality, the test is whether the scheme is not merely harsh but plainly
unfair. We found as a fact that the imposition of the penalty in this case,
whilst no doubt considered by Mr Kanani to be harsh, was not plainly unfair.
The legislation seeks to provide an incentive to employers to adhere to their
payment obligations and the imposition of penalties where they fail to comply
with these requirements cannot in our view be described as lacking reasonable
foundation.
Decision
30. For the reasons given above,
our decision is that HMRC correctly applied Schedule 56 Finance Act 2009 and
that the penalty for late payment of PAYE was correctly calculated and
charged. The penalty of £3,346.14 was not disproportionate. There was no
reasonable excuse for late payment. There was no special reduction which
applied. There was no evidence to justify the reallocation of the payments
made. The appeal is dismissed and the penalty of £3,346.14 for the tax year
2010-2011 affirmed.
31. 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.
FIONAGH GREEN
TRIBUNAL JUDGE
RELEASE DATE: 8 December 2012
