[2012] UKFTT 151 (TC)
TC01846
Appeal number:
TC/2011/06311
Income
Tax - penalties for late payment of PAYE and NIC - Schedule 56 Finance Act 2009
- twelve late payments in 2010/11 - penalties levied at 4% where more than ten
late payment failures - Appellant unaware that some payments made lateand some
paid late by only a few days – Appellant unaware of progressive nature of
penalty regime – whether reasonable excuse – no – appeal dismissed.
FIRST-TIER TRIBUNAL
TAX
CV
STAFF SERVICES LTD Appellant
t/a MINSTER CLEANING SERVICES
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL:
MICHAEL S CONNELL (TRIBUNAL JUDGE)
Sitting in public at 4th
Floor City Exchange 11 Albion Street Leeds LS1 5ES on 21 October 2011
For the Appellant : Ms
Virginia Skarbaliene, Director of the Appellant Company
For the Respondents : Ms
Joanna Bartup, Officer of HM Revenue and Customs
© CROWN COPYRIGHT
2011
DECISION
The Appeal
1. Having
orally given my Decision at the conclusion of the hearing to dismis this
appeal, the following are full written findings of fact and reasons for the
Decision.
2. CV
Staff Services Limited (‘the Appellant’) appeals penalties totalling £4,861.15
charged by HMRC under Schedule 56 Finance Act 2009 for the late payment of PAYE
and National Insurance Contributions during the tax year 2010-11.
3. HMRC
say that the PAYE and NIC for each of the 12 months in 2010-11 were not paid on
time. The relevant Regulations provide that an employer is liable to a penalty
of an amount determined by reference to the number of defaults made during the
tax year. Under the Regulations the first default during the tax year does not
count as a default and therefore does not incur a penalty. In this case, HMRC
say that there were 11 other late payment failures and that accordingly under
the Regulations a penalty of 4% was charged on the total amount of the default.
4. The
Appellant’s grounds of appeal are that they were unaware of the introduction of
the penalty regime under Schedule 56 Finance Act 2009, and in particular the
progressive nature of the penalties imposed for defaults as the number of
defaults increased throughout the year. The Appellant also appeals on the basis
that, although it paid PAYE and NIC late for each of the 12 months in 2010-11,
two payments were only 2 days late and eight payments were less than 7 days
late. The other two late payments were 13 and 15 days late.
5. The
evidence before the Tribunal comprised a bundle prepared by HMRC, which
included a summary of payments due and made by the Appellant in 1010-11 (their
default history); a copy of relevant extracts from issues of HMRC’s Employer
Bulletin, together with HMRC Guidance on PAYE/National Insurance Payments and
Deadlines; the Appellant’s notice of appeal and oral evidence by Ms Skarbaliene
as Director on behalf of the Appellant company.
Relevant Legislation
6. Regulation
69 Income Tax (PAYE) Regulations 2003 states that tax which an employer is
required to deduct under Regulation 68(2) must be paid either within 17 days
after the end of the tax period where paid electronically, or within 14 days
after the end of the tax period in any other case. Regulation 67 and Schedule 4
to the Social Security (Contributions) Regulations 2001 impose the same
requirements on an employer for the purpose of paying earnings related National
Insurance Contributions. The month end is the 5th of each month and therefore
electronic payments are due by the 22nd of each month and the
penalty date is the 23rd. Manual payments are due on the 19th
of each month and therefore the penalty date is the 20th.
7. Regulation
6 of Schedule 56 Finance Act 2009 states : -
6(1)
.. an employer is liable to a penalty of an amount determined by reference to
the number of defaults made during the tax year
6(2)
a default occurs if the employer fails to pay an amount of tax in full on or
before the due date, that is the 19th or 22nd of the
month (depending on the method of payment)
6(3)
the first default during the tax year does not count as a default and therefore
does not incur a penalty
Paragraphs
6(4) to (7) sets out the progressive nature of the penalty regime from 0% to 4%
as the amount of defaults increase throughout the year
Paragraph
16 says that if there is a reasonable excuse for the failure to pay on time
then there will be no penalty, but under paragraph 16(2) an insufficiency of
funds is not a reasonable excuse unless attributable to events outside the
employer’s control, and if there was a reasonable excuse for the failure that
excuse is deemed to have continued if the failure is remedied without
unreasonable delay once the excuse has ceased.
8. The
Appellants payments for PAYE and NIC were late for each of the 12 consecutive
tax months ending 5 April 2011. Because there were 10 or more late payment
failures, under Schedule 56 Finance Act 2009 paragraph 6(7) the rate of penalty
in respect of the total amount of defaults was 4%. The Appellant’s payment for
the first month of the tax year end 5 April 2011 was due on 21 May 2010, but
paid on 27 May 2010. Because this was a first default it did not count as a
default and therefore the Appellants did not incur a penalty. Each of the
payments made by the Appellants for months 2–10 were paid between 2 and 15 days
late. Two were 2 days late, six were between 3 and 6 days late, two were 8
days late and the other two were 13 and 15 days late.
HMRC’s contentions
9. Ms
Bartup on behalf of HMRC submitted that the Appellant did not have a reasonable
excuse for the late payments. She said that penalties for late payments had
featured regularly in the Employer Bulletin which is published on the internet
and provides information for employers regarding any changes in legislation and
penalty charges. Much of the publicity, she said, relating to the new late
payment penalty regime for PAYE was advertised extensively before and after
they came into effect. An employer pack featuring a CD-ROM was mailed to
employers in February 2010, flyers mailed to contractors and published on the
HMRC website as well as being distributed at face-to-face events organised by
HMRC. Late payment penalties were published in guidance and employer helpbooks
and detailed in national trade and regional publications. Ms Bartup says that
there is a requirement for employers to keep up to date with changes in policy
and legislation that may affect them, and that it was incumbent on the
Appellants to ensure that its payments were made on time.
10. Ms Bartup also
said that a warning letter was issued to the Appellants on the occasion of its
first default in May 2010. The Appellants dispute having received the warning
letter but Ms Bartup said there was no reported problems with HMRC’s automated
outputs on that day and the letter was not returned to HMRC as undelivered.
Appellant’s contentions
11. Ms Skarbaliene,
on behalf of the Appellant company, reiterated the grounds of appeal contained
in its appeal to the Tribunal, being that they were unaware of the introduction
of the new penalty regime and in particular the progressive nature of penalties
imposed for defaults as the number of defaults increased throughout the year.
Ms Skarbaliene said that, had the Appellant company been on time with payments
instead of being between 2-6 days late in respect of eight of its payments, the
penalty percentage would have been only 1% and, to that extent, the penalties
were unfair and particularly ‘painful’ to a small company. Since they had
become aware of the new penalty regime, payments of PAYE and NIC from May 2011
had been paid in full and on time. Ms Skarbaliene also said that the
retrospective nature of the penalties was unfair and that the Appellant company
should have been made aware of penalties as and when they arose, as opposed to
being applied at the end of the year by reference to the number of defaults.
Ms Skarbaliene maintained that in any event at least two of the Appellant
company’s payments, in her view, had in fact been paid on time.
Decision
12. The Tribunal
accepts that HMRC has correctly applied the legislation in this case. Penalties
have been correctly charged in respect of months 2–12 and the Appellant has not
provided a reasonable excuse that would allow liability for the penalties to be
reconsidered. The Tribunal accepts that payments in some instances were made
only a matter of days late but that is something which the Tribunal is not
entitled to consider unless there is a reasonable excuse for the late payment.
Accordingly the Tribunal determines that the Appellant has paid PAYE and NIC
late in respect of months 2–12 (month 1 was paid late but does not incur a
penalty) and that accordingly penalties are payable on those months at 4% of
the total amount of those defaults pursuant to paragraph 6(6) of Schedule 56
Finance Act 2009.
13. 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.
MICHAEL S CONNELL
TRIBUNAL JUDGE
RELEASE DATE: 22 February 2012
