[2012] UKFTT 756 (TC)
TC02413
Appeal number:
TC/2011/09532
PAYE –appeal against the
penalty imposed for the late payment of PAYE- Schedule 56 Finance Act 2009- appellant
did not receive warning letter and always posted the PAYE on or around the 19th
of the month – appeal allowed in respect of two months – dismissed in respect
of all other months
FIRST-TIER TRIBUNAL
TAX CHAMBER
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BROOME PARK NURSING HOME
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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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MRS HELEN MYERSCOUGH ACA
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Sitting in public at Bedford Square , London on 12 October 2012
Mr J Pannett of Haines Watts,
Gatwick for the Appellant
Ms K Weare, Officer of HMRC,
for the Respondents
© CROWN COPYRIGHT
2012
DECISION
1.
This is an appeal against the penalty of £12,052.20 imposed for the late
payment of PAYE during the tax year 2010/11.
The legislation
2.
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.
3.
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.
4.
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.
5.
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.
6.
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.
7.
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
8.
Mr Choy, who gave evidence on behalf of the appellant, has run the
Broome Park Nursing Home in partnership with his wife since 1993. Two of their
daughters joined them recently. Mr Choy, his wife and one of his daughters are
all nurses.
9.
They have some 60 employees but only Mr Choy can do the payroll which he
does three days before the month end. As a result of overtime and sickness he
often has to rerun the payroll and only after the rerun can he obtain accurate
figures.
10.
He accepted that during some months he had posted the PAYE late. He
always posted the cheque around the 19th of each month and some months he
posted the cheque before the 19th.
11.
Although he received some phone calls from HMRC the calls were just
queries as to when the PAYE would be paid and no mention of penalties was ever
made.
12.
Mr Choy was extremely concerned that HMRC had noted that the appellant’s
cheque for month 3 had been dishonoured and brought his bank statement to show
that this was completely wrong.
13.
Mr Choy stated that he had not received a warning letter as claimed by
HMRC and had no idea that a penalty was being incurred.
Appellant’s submissions
14.
Mr Pannett submitted that it was the absence of the warning letter which
had caused the problem.
15.
He submitted that HMRC had a duty of care to tell the taxpayer about the
penalty being incurred but instead all the telephone calls involved were
queries about when the PAYE would be received.
16.
Mr Pannett submitted that the penalty was disproportionate to the
lateness of the payments which were only ever a few days late.
17.
In the appellant’s appeal Mr Pannett submitted that the imposition of
the penalty was unfair and an abuse of the system.
18.
He submitted that HMRC was obliged to administer the penalty regime in a
fair and equitable way and had not done so.
HMRC’s submissions
19.
Ms Weare submitted that the appellant had no reasonable excuse for the
late payments.
20.
She submitted that although there was no requirement in the legislation
to inform the taxpayer of the penalty, on 28 May 2010 a warning letter which was not returned was sent to the appellant and therefore the assumption
was that it had been received by the appellant.
21.
She submitted that the new penalty regime had been well publicised and
therefore the appellant should have been aware of it.
22.
She submitted that the penalty levels were designed to be penal in
nature and intended to encourage payment on time.
23.
The application of the penalty was not discretionary as is shown by
paragraph 11 of Schedule 56.
24.
The penalty was fair and the rate increased with the number of defaults.
Findings
25.
We found Mr Choy to be a sincere and honest man who ran an efficient
nursing home which had won a best nursing home in Surrey award. We found that
he genuinely believed that he was paying the PAYE on time.
26.
We accepted that he had not received the warning letter and was not
aware of the new regime.
27.
We found that ignorance of the law is not a reasonable excuse and we
found that the penalty was properly administered by HMRC exactly in accordance
with the legislation.
28.
However we recognised that HMRC had made several errors in claiming that
a cheque had been dishonoured, that the partnership was a company as stated in the
review from HMRC dated 3 November 2011 and the non receipt of the warning
letter.
29.
We found it likely that months 1 and 6 which were only two days late
were posted before the 19th of the month and should have reached HMRC in time.
Decision
30.
The penalty in respect of months 3, 4, 5, 7, 8, 9, 10 and 11 is hereby
confirmed and the penalty in respect of month 2, which becomes the first
default and not counted, and month 6 is hereby cancelled.
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.
SANDY
RADFORD
TRIBUNAL JUDGE
RELEASE DATE: 8 December 2012
