In Angela Salazar v HMRC [2019] TC7398, the First Tier Tribunal (FTT) allowed an appeal against employment intermediary return late filing penalties. They were raised against the wrong person and the taxpayer had a reasonable excuse.

  • Since April 2015 there has been a quarterly reporting regime where agencies and employment intermediaries must report payments made to workers which are not taxed under PAYE. 
  • An “employment intermediary” is a person who makes arrangements under or in consequence of which
    • an individual works, or is to work, for a third person, or
    • an individual is, or is to be, remunerated for work done for a third person.
  • Penalties apply to late returns but may be avoided if there is a reasonable excuse.

Ms. Salazar’s business, Spanish and Coffee Limited, operated a café where customers could come to be taught Spanish by her and other workers. She was the sole director.

  • In November 2016 HMRC issued a penalty notice for £250 for a late first employment intermediaries return. The return was filed two months late.
  • It was unclear from the evidence to whom the penalty notice was addressed as the company address was the same as Ms. Salazar’s home address.
  • Ms. Salazar appealed the penalty on the grounds of reasonable excuse.
    • The return was for the first quarter after the rules came into effect and she had never received any communication from HMRC informing her of the new legislation.
    • She could not speak English and relied on her accountant to handle all tax matters.
    • When the return was due her accountant had a child with a life-threatening heart condition requiring surgery and had not informed her about the filing requirements.

In their statement of case, HMRC were divided about who should pay the penalty; Ms. Salazar, or her company. The only evidence was a HMRC computer printout from the records for the company.

  • The FTT determined from the evidence provided that the penalty was charged on Ms. Salazar but that she was not the employment intermediary. She did not make the relevant arrangements with workers, her company did. She was acting as an agent on the company’s behalf as its sole director, and not as principal.

For completeness only, the FTT considered two other issues which it took some time to carefully review:

  • did HMRC comply with the procedural requirements of the TMA in charging the penalty and
  • whether, if the legislation imposed a penalty, Ms. Salazar had a "reasonable excuse"?

The tribunal found:

  • as there was no evidence that a “flesh and blood individual” had issued the penalty, as required by the legislation, and not a computer, the procedural requirements were not met.
  • She did have a reasonable excuse as it was objectively reasonable for her:
    • not to file the return on time as she had relied on her accountant.
    • Not to be aware of the requirement to file the return in the two-month period between the filing deadline and when the return was actually filed.
  • The judge rejected HMRC’s view that a taxpayer who pays an accountant for their tax affairs to be looked after must closely supervise the accountant's performance to prevent mistakes, and if they do not, is liable to penalties.

The case was determined on its papers, that is there was no hearing under prior agreement with the parties. The paper evidence, such as it was, did not go in HMRC’s favour.


Appeals: grounds for appeal toolkit 
What grounds are there to appeal a tax penalty? How can you word a tax appeal? Can you appeal HMRC errors? What is a reasonable excuse?

Links to our subscriber guides

Agency Workers: employment intermediaries rules
Agency workers are subject to PAYE and NICs on their earnings and employment intermediaries have specific reporting instructions from April 2015.

Grounds for appeal: taxpayer reasonable excuse 
What is considered to be a 'reasonable excuse' when a taxpayer makes an appeal?

Grounds for Appeal: HMRC error or flaw
When can an error, mistake or procedural flaw made by HMRC provide a valid ground for making an appeal?

External link:

Angela Salazar v HMRC [2019] TC7398