[2012] UKFTT 142 (TC)
TC01837
Appeal number
TC/2011/05043
Penalties
for late payment of PAYE and NIC – schedule 56 Finance Act 2009 – twelve late
payments - penalties levied at 4% for more than ten late payment failures–
Appellant unaware of progressive nature of penalty regime – cash flow and
administrative problems – reasonable excuse – no – appeal dismissed.
FIRST-TIER TRIBUNAL
TAX
AQUILA PROCESSING LIMITED Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL: MICHAEL S CONNELL (TRIBUNAL JUDGE)
ANN
CHRISTIAN (MEMBER)
Sitting in public at 4th
Floor City Exchange 11 Albion Street Leeds LS1 5ES on 07 October 2011
For the Appellant : Mr Gordon Bell, Company Financial Controller
For the Respondents : Mr Tony Burke, Officer of HM Revenue and Customs
© CROWN COPYRIGHT
2012
DECISION
The
appeal
1. Having
already given our decision to dismiss this appeal at the conclusion of the
hearing, the following are full written findings of fact and reasons for the
decision.
2. Aquila
Processing Limited (“the Appellant”) appeals penalties totalling £1,282.26
charged by HMRC under Schedule 56 Finance Act 2009 for the late payment of PAYE
and National Insurance Contributions (NIC) during the tax year 2010-11.
3. The
Appellant company’s PAYE and NIC for each of the 12 months in 2010-11 were not
paid on time. In some months payments were made on account but of an
insufficient amount to discharge the amount due. 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, because there were 12
late payments, a penalty of 4% was charged on the total amount of the default.
4. The
Appellant accepts that each of the 12 monthly PAYE and NIC payments payable in
2010-11 were paid late. The Appellant’s grounds of appeal are 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. The Appellant also appeals on the basis that it
was suffering administrative and cash flow problems, saying that some months
were overpaid and some underpaid due to weekly wages being posted to a wrong
period on its account system but that everything balanced out eventually and
the correct amount had been paid for the year ending 05 April 2011. The
Appellant submits that in some months, payments were late only by a matter of
days or weeks, and were always eventually paid in full. The Appellant argues that,
in view of this, the amount of penalty of £10,282.26 is excessive and
disproportionate.
5. The
evidence before the Tribunal included the Appellant’s notice of appeal to the
Tribunal; a copy of HMRC’s recorded transcripts of communications between the
Appellant and HMRC during the tax year; HMRC’s schedule of the Appellant’s
default ‘history’; a copy of relevant extracts from HMRC’s Employer Bulletin
relating to the introduction of late payment penalties and oral evidence by Mr
Bell on behalf of the Appellant company.
Relevant Legislation
6. Regulation
69(1) 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 when 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 NIC.
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. Paragraph
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 year.
(2) a default occurs
if the employer fails to pay an amount of tax in full on or before the due date,
that is by the 19th or 22nd of the month (depending on
the method of payment).
(3) the first
default during the tax year does not count as a default and therefore does not
incur a penalty.
Paragraphs (3)-(7) set
out the progressive nature of the penalty regime from 0% to 4% as the number of
defaults increase throughout the year.
Paragraph (16) provides
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 due to events outside the employer’s
control.
8. Because
there were 10 or more late payment failures, the rate of penalty in respect of
the total amount of defaults was 4%. The first late payment did not count as a
default and therefore the Appellant did not incur a penalty. However, HMRC
issued a warning letter. The Appellant does not dispute that it received the
warning letter. Most of the payments made by the Appellant were several weeks
late and, on one occasion, several months late.
HMRC’s contentions
9. Mr
Burke on behalf of HMRC submitted that the Appellant did not have a reasonable
excuse for the late payments. He said that penalties 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, he said, related to the new late payment
regime for PAYE and was advertised extensively before and after the regulations
came into effect. An employer pack featuring a CD ROM was emailed to employers
in February 2010. Flyers were mailed to contractors and published on the HMRC
website as well as being distributed at various events attended by employers
and organised by HMRC. Late payment penalties were published in guidance and
employer help books and detailed in national trade and regional publications.
Mr Burke 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 Appellant to ensure that its payments were made on time.
10. Mr Burke said
that the Appellant does not dispute that it received a warning letter or a copy
of the employer bulletin and openly conceded that problems had really stemmed
from internal administrative difficulties and cash flow problems.
Appellant’s contentions
11. Mr Bell in his
submissions reiterated the Appellant company’s grounds of appeal as stated in
the notice of appeal to the Tribunal. He said that the company had been
totally unaware of the new late penalty regime but felt that the retrospective,
progressive and total amount of penalties imposed was unfair given the nature
of the defaults, and that in some instances payments were only made days late.
Mr Bell said that, had notification of the penalties been given at as early
stage, the management of the company would have been put on notice and resolved
its internal administrative problems, which would therefore have enabled it to
ensure that, at least for the latter part of the tax year, payments would have
been made on time.
Decision
12. The Tribunal
accepts that HMRC has correctly applied the legislation in this case and
therefore correctly charges penalties in respect of months 2-12. The Appellant
has not provided a reasonable excuse that would allow the penalties to be
reconsidered. Accordingly, because the Appellant has made 10 or more defaults
during the tax year, the Appellant is liable to a penalty of 4% of the total
amount of those defaults in accordance with paragraph 6(7) of Schedule 56
Finance Act 2009.
13. For the above
reasons we dismiss the appeal.
14. 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: 17 February 2012
