[2013] UKFTT 314 (TC)
TC02717
Appeal number:
TC/2012/02956
Penalty – late payment of
PAYE and NICs payments – FA 2009, Sch 56 – whether reasonable excuse for late
payments – no – whether special circumstances – yes – appeal allowed in part
FIRST-TIER TRIBUNAL
TAX CHAMBER
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CLAYGOLD
PROPERTY LTD
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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 JILL C GORT
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DR CHRISTINA HILL WILLIAMS DL
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Sitting in public in Reading on 29 January 2013
Mr J Bevins, Managing Director
for the Appellant Company, appeared on its behalf.
Mr P Reeve, Officer, appeared
on behalf of the Respondents
© CROWN COPYRIGHT
2013
DECISION
1.
This is an Appeal against a decision of the Commissioners on 22
September 2011, subsequently amended on 10 April 2012, that the Appellant
(“Claygold”) did not have a reasonable excuse for making late payments of its
PAYE/NIC liabilities for the year ended 5 April 2011. The initial decision was
to impose a penalty in the sum of £9,701.84 but this was subsequently reduced
to £6,151.01.
2.
By its Notice of Appeal dated 8 December 2011, Claygold referred to cash
flow problems, to the fact that the bank would not provide an overdraft, that
it had in the past paid by split payments every two weeks, that it had in the
last three years had to cut over four to five members of staff and if the fine
were imposed it would have to lose two to three more staff, and the company was
fighting to stay in business.
Legislation
3. Schedule
56 Finance Act 2009 allows a penalty to be charged when an employer fails to
pay to HMRC its monthly PAYE/NIC payment by the due date.
The penalty date for this is the day after the date
determined by or under PAYE regulations as the date by which the amount should
be paid.
These are:-
·
Manual payment 14 days after month end (fifth of each month) so
due Nineteenth, penalty date twentieth. (Miss Gort does this read better
than numbering?)
·
Electronic payment 17 days after month end (fifth of each month)
so due twenty -second penalty date twenty-third. (ditto as above)
Paragraph 6(1) provides that an employer is liable to a
penalty of an amount determined by reference to the number of defaults made
during the tax year.
Paragraph 6(2) specifies that a default occurs if the
employer fails to pay an amount of tax in full on or before the due date i.e.
19th or 22nd of the month (depending on the method of
payment).
Paragraph 16 provides that if there is a reasonable
excuse for the failure to pay on time then there will be no penalty, but Paragraph
16 sub-paragraph (2) states that:
·
an insufficiency of funds is not a reasonable excuse, unless
attributable to events outside an employer’s control.
·
the reliance on somebody else to do something is not a reasonable
excuse, unless reasonable care was taken to avoid failure.
·
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 ceased.
Paragraph 9 (Special Reduction) provides for a penalty to
be reduced if HMRC think it right to do so because of special circumstances.
It states:
“(1) If HMRC think it right
because of special circumstances, they may reduce a penalty under any paragraph
of the 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.”
Paragraph 13 provides the taxpayer with a right of
appeal:
Para 13 (1) against a decision by HMRC that a penalty is payable
Para 13 (2) against a
decision of HMRC as to the amount of a penalty
On an appeal under Paragraph
13(1) the tribunal may affirm or cancel the decision – Paragraph 15(1)
(4) Regulation 69 Income Tax
(PAYE) Regulations 2003 defines the due date for the monthly PAYE payments as:
(i) within 17 days
after the end of the tax period, where payment is made by an approved method of
electronic communications, or
(ii) within 14 days
after the end of the tax period, in any other case
c) Regulation 67 and
Schedule 4 to the Social Security (Contributions) Regulations 2001 imposes the
same requirements on an employer for the purpose of paying earnings related
National Insurance Contributions.
(5) The above penalty regime came in on 6 April 2010;
the penalties are structured on a sliding scale, the more late payments in a
tax year, the larger the percentage penalty applied to the aggregate of the
late payments. The first default in any year is disregarded altogether. The
remaining defaults trigger a penalty of 1%, 2%, 3% or 4% depending on their
number. A 4% penalty is payable if there are ten or more defaults during the
tax year. In the present case HMRC assessed a penalty at the 3% rate which is
applicable if a taxpayer makes 7, 8 or 9 defaults during the tax year, and the
3% is based on the amount of the tax comprised in the total of those defaults.
The Evidence
4.
The Commissioners provided us with a bundle of documents, the Appellant provided
no documentary evidence but Mr Bevins gave oral evidence at the hearing. We
found him to be a competent and credible witness.
5.
We were not provided with very much information about the actual
background, and in particular we were not provided with any accounts or bank
statements on behalf of Claygold. We should say that we find it surprising
that in a direct tax reasonable excuse case the Commissioners did not ask the taxpayer
to provide such evidence as is usual in a Value Added Tax case where there is
provision for a reasonable excuse. Mr Bevins, the Managing Director of
Claygold, had set up the company as a property business in 1992 and had
achieved a turnover of £4.5m and employed 89 people. After the property crash
of 2007, the company had considerable cash flow problems, as did so many others
in the property business. In order for the company to survive, Mr Bevins had
remortgaged his own house and buildings (we were not told which buildings) and
he and a man we believe to be a co-director of Claygold put in £800,000. Forty
five members of staff were laid off. Additionally, in February 2008, the bank
had withdrawn the company’s overdraft, which had stood at between £150,000 and
£170,000. The facility was not renewed until about February 2008, but then
only at the level of £50,000 whereas it was considered by Mr Bevins that the
Company needed £120,000 to solve its cash flow problems.
6.
The evidence shows that the company paid its PAYE late on every occasion
through the tax years 2007, 2008 and 2009, but in 2010 there were a few
occasions when the tax was paid by the due date. We learn from Mr Bevins that
he had had little education, and was dyslexic. In September 2009 he had had a
heart attack.
7.
Mr Bevins believed that regular calls had been made to the Commissioners
requesting time to pay late and that the company had been allowed by the
Commissioners to pay its PAYE late. The company employed a book keeper, Mrs
Williams. Between 2007 and March 2010 it was possible for employers to delay
payments to the Commissioners without incurring penalties, although a ‘Notice
requiring payment’ would be sent out informing the taxpayer that if payment was
not made within 7 days of the issue of the Notice, the specified amount “may be
recovered by distraint without further warning”. The evidence shows that such notices
were issued to Claygold on three occasions in 2009, and it appears that the
same type of form was issued on 24 April 2010, 27 May 2010, 24 November 2010,
and 7 March 2011. We were not given any copies of letters which had actually
been sent to Claygold, either in 2009, 2010, or 2011, although Mr Reeve
informed us that on at least one occasion a letter had been specifically sent to
Claygold notifying it that the Commissioners “will take action against
employers and contractors who do not pay their PAYE on time and who do not have
a time to pay agreement.” All we saw was a generic version of this letter
which was said to be sent out by the Commissioners to each taxpayer when they
became due for a penalty. The Commissioners’ records refer both in 2009 and
2010 to ‘PO1 issued’. We were shown an example of what we were told by Mr
Reeve was Form P101, and that is the form of letter already referred to
threatening distraint if payment is not made within 7 days.
8.
We were provided with the Commissioners’ computerised records of contact
with Claygold. We note that in 2009 there is a record of contact of one form
or another on eight occasions. These vary from a record of the issue of a form
P101, of which there were three sent out, two calls to the taxpayer and two
calls from the taxpayer. Mr Reeve referred to the evidence as showing that on
only two occasions, namely April 2009 and the end of March 2011, had an arrangement
to pay been allowed by the Commissioners. Claygold had paid the tax regularly,
(although always late) and always in two instalments throughout the years 2007
to 2010, and there had been fairly regular telephone calls from the
Commissioners to Claygold about the payments. Unfortunately from Mr Bevin’s
point of view, the calls from Claygold had not been made in anticipation of
late payment but in response to calls from the Commissioners after the due date
had passed and therefore the late payment attracted a penalty in every case.
The call on 30 March 2011 was in fact made after the liability became due, but
the Commissioners had failed to issue a penalty on that occasion and no penalty
has been imposed in respect of that period subsequently.
9.
Whereas in 2009 there was fairly frequent contact between the
Commissioners and Claygold, the last recorded contact was on 27 November 2009
and there was no further recorded contact until 28 April 2010, by which time
the new penalty regime was in force. On 28 April the Commissioners telephoned Claygold
and the call was returned on the same day. The content of the call is recorded
as follows: “Cash flow goes in three/four month cycles, loss even profit. Has
only last week been given an overdraught (sic) on his account.” On 29 April
2010 a P101 was issued in respect of tax year April 09-10. On 27 May 2010 a
further P101 was issued in respect of 6 April 2010 to 5 May 2010. Not until 30
March 2011 is there a note to the effect that the taxpayer was advised of the
penalties. On 25 July 2011 and 24 August 2011 there are further notes to this
effect and 24 August 2011 it is recorded that “says knows about these”.
The Commissioners’ case
10.
The Commissioners’ case is straightforward: Claygold paid all 12 of its
monthly PAYE payments late from April 6 2010 to April 5 2011. Whilst
originally charged a penalty in respect of all the months from month 2 to month
12 inclusive, the total penalty amounting to £9,701.84 having been charged at
4%, following the Appellant lodging his Appeal and the decision in the case of Agar
Ltd TC/01625, the assessment was subsequently amended by the removal of the
penalties in respect of months 11 and 12. The effect of this was that the rate
at which the penalty was charged was lowered from 4% to 3%, giving a total
penalty of £6,151.
11.
It was submitted that cash flow did not amount to a reasonable excuse in
this particular case, the events such as the property crash had happened too
long before for Claygold to be able to rely on it. It was Claygold’s habit to
pay late and there was no particular event that had “led to a flip in an
otherwise impeccable payment record”, which Mr Reeve understood to be “what …..
the legislation wants us to consider in respect of whether or not a cash flow
problem can be considered to be a reasonable excuse.”
12.
We were referred to the case Rodney Warren & Co TC.01754
where at paragraph 45 Judge Hellier had said:
“…. in order for an event to exculpate a
taxpayer from a default it must be a reasonable excuse ‘for’ the default: in other
words there must be a causal link between the event and the default….” It was
submitted by Mr Reeve that this meant that an additional reason for late
payment did not amount to a reasonable excuse if an employer was already paying
late. This we do not find to be a correct interpretation of the law by Mr
Reeve, whatever is proffered as a reasonable excuse must be examined on its
merits, although earlier behaviour is often very relevant to the question of
whether or not there is a reasonable excuse.
13.
With regard to Claygold’s intention that there was an agreement with the
Commissioners to make payments every two weeks, whilst it was conceded that
this had happened on two occasions, there was no such continuing agreement
because such an agreement would be unfair to the other employers who paid on
time. The record of telephone calls showed HMRC continually chasing Claygold
for payment which would not have happened if an arrangement were in fact in
place. Mr Reeve pointed to the Enforcement Notices which were issued with the
threat of distraint as showing no agreement being in place. In respect of there
having been no correspondence or calls from the Commissioners letting Mr Bevins
know of the liability to a penalty, a penalty warning letter had been issued on
28 May 2010, although Mr Reeve was not able to produce a copy of that letter.
It was claimed also that Mr Bevins had been warned about the penalties when he
called the Commissioners on 27 May 2010, but the record does not show that this
is the case. We were referred to the case of Dina Foods Ltd TC.01546 in
respect of the Notices issued by the Commissioners, where at paragraph 37 Judge
Berner said: “We are of the view that no reasonable employer, aware generally
of its responsibilities to make timely payments of PAYE and NICs amounts due,
could fail to have seen and taken note of at least some of the information
published and provided by HMRC.” We were also referred again to the case of Rodney
Warren & Co (supra) at paragraph 47 where Judge Hellier stated: “The
obligation is to make payment: the lack of a warning (or early assessment) of a
penalty is not an excuse for failing to make payment….”
The Appellant’s case
14.
Claygold claimed a reasonable excuse on the basis that there was an
arrangement to pay the monthly PAYE by two cheques each month, one on 15th
and one at the end of the month. Furthermore at no time were they informed
that costly penalties for late payments would be incurred, and finally it had
been difficult to keep the company going because of the then current economic
climate and the company had financial problems. It was pointed out that all
the PAYE owing for 2010/11 had been paid and the company was up to date with
its payments for 2011/12.
Considerations and reasons for Decision
15.
Whilst to succeed in this appeal and have the penalties discharged,
Claygold must show on the balance of probabilities that it had a reasonable
excuse for the late payment, if it fails to establish as a matter of law that
there is a reasonable excuse, it is nonetheless available to the company to
persuade the Commissioners or the Tribunal that there are special circumstances
which would make it right for the penalty to be reduced. This power is given
to the Commissioners by paragraph 9 of Schedule 56, and to the Tribunal by
paragraph 13(2) of Schedule 56. The Commissioners did not in this case
consider whether there were any special circumstances and we have referred to
no authorities as to what might constitute special circumstances. We will
return to the matter of whether any exist in this case below.
16.
With regard to reasonable excuse, we have carefully considered the
matters put forward by Mr Bevins on behalf of Claygold and do not find that any
of the matters put forward by him initially or which have emerged in the course
of a hearing amount to reasonable excuse. Cash flow can only amount to a
reasonable excuse if its occurrence is caused by an unexpected event outside
the taxpayer’s control, and if it has occurred sufficiently proximately to the occurrence
of the default(s) in question. Six months is generally considered to be the
length of time beyond which such an event will no longer constitute a ground
for a reasonable excuse. In Claygold’s case the precipitating causes of the
cash flow problems were initially the property crash in 2007 and then later the
withdrawal of its overdraft facility in 2008. Neither of these events is in
our judgment sufficiently proximate to the defaults in the 2010-11 period to
give Claygold grounds for a reasonable excuse, particularly since at the start
of the 2010-11 tax year Claygold had been granted an overdraft of £50,000.
17.
With regard to Mr Bevins claim to have an arrangement with the
Commissioners to pay the PAYE by two instalments, for the reasons given by Mr
Reeve, we did not accept that this was the case. Careful examination of the
Commissioners’ phone records shows that more often than not, it was the
Commissioners who called Claygold enquiring about the late payments, and this
was the pattern throughout 2009-2010. Whilst this pattern did change in 2010,
and the Commissioners no longer made regular calls, they did call in April,
Claygold called them in May but there were no calls from the Commissioners
after that until 26 October. We accept Mr Reeve’s submission that if Mr Bevins
had believed that Claygold had an arrangement to pay late and by instalments as
claimed, he might have been expected to query the issuing of the P101’s in May
and October, which he did not.
18.
At some stage Mr Bevins became aware of the penalty regime, but the only
record of this is on 24 August 2011 (after the year in question) when he was
specifically told about it and he replied that he knew about it.
19.
The legislation does not require the Commissioners to issue warnings to
individual employers, although in circumstances where, as here, an employer has
regularly been contacted by the Commissioners in the year prior to the coming
into force of a new regime it might be hoped that a clear and specific warning
would be given to such an employer. There was evidence of the details of the
new legislation being widely circulated to all employers and it was not
suggested by Mr Bevins that that was not received by Claygold. It is a fact
that under the new legislation the first default would not have attracted a
penalty and so only a warning letter would have been issued. The facsimile
warning letter that we saw was in very small print, and we saw no evidence of a
warning letter having been sent to Claygold, although we accept Mr Reeve’s
evidence that the Commissioners sent out such letters to all defaulting
taxpayers. In this case we do not find that a failure on the part of the
Commissioners to issue a specific warning to Claygold is capable of amounting
to a reasonable excuse.
20.
With regard to special circumstances, Mr Bevins had had little
education, was dyslexic, and had had a heart attack in September 2009, some six
and a half months before the start of the tax year in question. It is evident
that the company had paid its PAYE in two instalments for a considerable period
of time. We were told that Mr Bevins had tried for some time to ease the
company’s cash flow by going onto monthly VAT returns but had not been allowed
to do so because Claygold was never sufficiently up to date with its payments
for this to happen. We have looked at the pattern of telephone calls between
Claygold and the Commissioners, and have commented above on the frequency or
otherwise of them, and whilst none of the above matters provide Claygold with a
reasonable excuse for the late payment, as stated above, we nonetheless find
that in this case the combination of matters set out in this paragraph are
capable of amounting to special circumstances. It was evident to us that Mr
Bevins has quite severe dyslexia, and this, combined with his comparatively
recent heart attack, and the pattern of trading which Claygold had developed
and its relationship with the Commissioners over the preceding years, we find are
sufficient to amount to a special circumstance for Claygold’s failure to pay
its PAYE/NIC contributions by the due date in April, May and June 2010. We add
that we do not consider that the Commissioners’ failure to have considered the
existence of special circumstance is to be criticised. We only learned about
the heart attack and the dyslexia in the course of the Hearing. In the exercise
of the powers given to us by paragraph 13(2) of Schedule 56 we allow this
Appeal to the extent only that we direct that Claygold should no longer be
deemed liable for a penalty in respect of months 2 and 3.
21. 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.
JUDGE J C GORT
TRIBUNAL JUDGE
RELEASE DATE: 3 May 2013
