[2013] UKFTT 537 (TC)
TC02926
Appeal number: TC/2013/02304
PAYE – Penalty
for late payments; whether reasonable excuse – no; appeal dismissed
FIRST-TIER TRIBUNAL
TAX CHAMBER
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RED BUILDING PROJECTS
LIMITED
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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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PRESIDING MEMBER: PETER R SHEPPARD FCIS, FCIB, CTA, ATII
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MEMBER: SCOTT A RAE LLB,WS
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Sitting in public at George
House, Edinburgh on 23 August 2013
Mrs Jo Simpson for the
Appellant
Mrs Linda McGuigan, Officer of
HMRC, for the Respondents
© CROWN COPYRIGHT
2013
DECISION
Introduction
1.
As a preliminary matter HMRC’s letter of 5
November 2012 advising the conclusions of their review gave the appellant 30
days to lodge an appeal against their decision with the First-tier Tax Tribunal.
The appellant submits that it sent an appeal in December 2012 but this was not
received by the Tribunal. A replacement notice of appeal dated 27 March 2013
was received by the Tribunal. In the circumstances and in the absence of any
objection from Mrs McIntyre for HMRC the Tribunal proceeded to hear the
substantive appeal.
2. This concerns an appeal to the Tribunal dated 27 March
2013 made by the appellant against a penalty initially assessed by HMRC in the
amount of £6,289.64 but later reduced by them to £6,109.53. The penalty was for
late payments of PAYE for the tax year 2011-12.
Statutory Framework
3.
The Finance Act 2009 Schedule 56 provides for penalties to be determined
for late payments of PAYE.
Case law
Algarve Granite Ltd v HMRC [2012] UKFTT 463 (TC)
Facts
4.
The appellant is a small building firm operating in Edinburgh and the
surrounding area. Over recent years it has managed to train up seven
apprentices who have now qualified.
Appellant’s submissions
5.
On 9 October 2012 the appellant considers it had agreed a time to pay
arrangement with HMRC which covered all outstanding debt.
6.
HMRC’s Taxpayer Designatory Data has the following entry on 9 October
2012.
“C6055582 09/10/12 15.21 No returns outstanding. No other
HMRC debts. TP has no repayments due. TP has no previous TTP requests. Unable
to PIF due to lack of work. TP has tried the following- approaching bank.
Assets available – none. Action taken to ensure pymts met – upturn in
business.”
7.
On 10 October HMRC sent a penalty determination notice to the appellant.
8.
On 26 October 2012 Mrs Jo Simpson, Finance Director, for the appellant
wrote to HMRC appealing against their decision to charge the penalties at that
time in the amount of £6,289.64 for the late payment of PAYE for 2011/2012. The
letter states
“Whilst I accept we were extremely late on paying these
and at the year end were outstanding a substantial balance I would like to
appeal against the penalties.
9.
As a small building business between 2009-2012 we were affected badly by
not only the recession but by two horrific winters where work on building sites
had to stop. We made the decision to keep all staff employed and to continue to
try and trade as best we could. Unfortunately we got behind with our PAYE
payments.
10.
We have worked really hard to keep up to date with 2012-2013 and just
negotiated a time to pay arrangement for 2011-2012’s outstanding balance.
Whilst we fully accept that interest charges are and will continue to be
applied the penalties of £6,289.64 would have a major impact on the running of
our business and I was not aware of these at the time I made the arrangement.”
11.
HMRC replied to that appeal in a letter dated 5 November 2012 to the
appellant. They said that they could not accept that the appellant’s reasons
for late payment constituted a reasonable excuse.
12.
The appellant appealed this decision to the First-tier Tribunal. In
their notice of appeal dated 27 March 2013 the appellant repeats the points
made in their letter to HMRC dated 26 October 2012.
13.
At the hearing Mrs Simpson gave more details of the company’s business
and the difficulties they had faced during the bad winter of 2011/12 including
some employees who resided outside of Edinburgh being trapped at home for a few
days when roads were impassable. She candidly accepted that the appellants had
been naïve in planning for winter work. She said that the appellant had managed
to pay wages and pay sub-contractors on time but obligations to make PAYE
payments on time had not been kept to. She criticised HMRC for agreeing time to
pay arrangements and then sending a penalty notice only days later.
Respondent’s submissions
14.
Mrs McGuigan for HMRC referred to a ‘PAYE late penalty calculation, in
the bundle of documents provided to the Tribunal. This detailed incidences of
late payments by the appellant in the tax year 2011-2012.
15.
In that period the appellant made 10 or more late payments so in
accordance with Paragraph 6 of Schedule 56 of the Finance Act 2009 the penalty
is levied at a rate of 4% of the tax paid late which was £108,844.28. The
penalty is therefore £4,353.77. In addition where amounts have been outstanding
for more than six months, Paragraph 7 of Schedule 56 provides that an
additional penalty of 5% is chargeable. The amount outstanding for more than six
months was £35,115.27 so the additional penalty is £1,755.76. The total of the
two penalties is therefore £6,109.53
16.
The original penalty of £6,289.64 had been calculated by HMRC. In
reviewing the papers ahead of the hearing HMRC noticed that the payment
application should be revised with the result that the penalty was reduced to
£6,109.53
17.
Mrs McGuigan submitted that HMRC had considered whether the appellant
had reasonable excuse for the late payments as contemplated by Paragraph 16 of
Schedule 56 of the Finance Act 2009. HMRC had concluded that they did not.
Paragraph 16(2)(a) provides:
“an insufficiency of funds is not a reasonable excuse
unless attributable to events outside P’s control.” P having been defined
earlier in the legislation as “a person”.
18.
In their letter of 5 November 2012 to the appellant HMRC pointed to
numerous communications they had made to the appellant in the form of penalty
articles and warnings contained in Employer Bulletins. They had also sent a
specific warning letter after the first failure to pay on time and had made
telephone calls to the appellant.
19.
In respect of the appellant’s argument that the general economic
downturn might constitute a reasonable excuse, Mrs McGuigan drew attention to
paragraphs 34 and 35 of the First-tier Tribunal’s decision in Algarve
Granite Ltd v HMRC [2012] UKFTT 463 (TC) which considered that the downturn
is “the consequences of normal trading, albeit in adverse economic conditions”.
In their Statement of Case HMRC state that “The global recession can be
regarded as starting in 2007 and by 2011-2012 cannot be regarded as an
unforeseen event”.
20.
Mrs McGuigan referred to page 10 paragraph 39 and onwards of the
First–tier Tribunal decision in the case of Algarve Granite Ltd. She
said that HMRC did consider whether they should apply the Special Reduction
rule as provided by Paragraph 9 of Schedule 56 of the Finance Act 2009 but had
decided not to do so.
Decision
21.
The Tribunal finds that HMRC’s actions in assessing a penalty only a few
days after the appellant thought it had agreed a time to pay arrangement for
all outstanding debts is poor. Whilst it is clear that the penalty was due and
the appellant should have realised this, it is also clear that by omitting to
mention it when the time to pay arrangements were being entered into, HMRC
misled the appellant. It is no argument to say that the penalty did not hit
their system until 26 October 2012 as the penalty had been incurred by 23 April
2012, so HMRC could have levied it at any time since then if they had chosen
to. The effect of this omission was that the appellant then worked out a
budget/cashflow for the months ahead having thought it had agreed a time to pay
arrangement for all outstanding tax. Unexpectedly it then had to budget for an
additional £6,109.53, a not inconsiderable sum for a small business. Whilst the
Tribunal is critical of HMRC in omitting to mention the penalty when time to
pay arrangements were being made, this occurred after the period in question
and at a time when payments had already been made late and therefore cannot be
regarded as a reasonable excuse for the late payments.
22.
The Tribunal considered whether or not the appellant had reasonable
excuse for the failure to make PAYE payments on time in 2011/2012 tax year. It
is true that the severe weather conditions in the winter of 2011/2012 were
events outside of the appellant’s control but such weather conditions are not
unusual in winter in Scotland. The appellant should have made adequate
provisions to allow for that possibility such as by scheduling indoor projects
for the winter months which the appellant accepted they had to some extent
failed to do.
23.
The penalty of £6,109.53 for the period 2011-12 that has been assessed by
HMRC has been correctly calculated as set out in paragraph 13 above. The appellant
does not dispute that the payments had been made late and has established no
reasonable excuse for their late submission. Whilst in the unfortunate
circumstances of this case the Tribunal has some sympathy for the appellant the
legislation makes it clear that the Tribunal has to dismiss this appeal.
24.
The documents show that HMRC did consider whether they should apply the
Special Reduction rule as provided by Paragraph 9 of Schedule 56 of the Finance
Act 2009 but had decided not to do so and whilst sympathetic to the position in
which the appellant found themselves in the light of the subsequent (to them)
unexpected demand for penalty, the Tribunal, in all the circumstances of the
case and in the light of the statutory provisions imposing the penalty regime,
could not regard the HMRC decision to charge penalty as sufficiently “flawed”,
within the provisions of para 15 of Schedule 56, as to merit substituting an
alternative decision.
25.
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.
PETER
R SHEPPARD
PRESIDING MEMBER
RELEASE DATE: 27 September 2013
