The first published decision on late PAYE penalties possibly creates more questions than it provides answers.
In Dina Foods TC 1546 a company was unsuccessful in its appeal against a £10,000 penalty. This was the first published decision covering new penalties under Schedule 56 FA 2009.
The company was habitually late in paying its monthly PAYE: during 2010/11 the company was between 4 and 84 days late on 11 occasions. It was charged penalties at the rate of 4% and it appealed the penalty notice.
HMRC declined to accept the company’s excuses for late payment and the case went the Tribunal.
The company's argument
- The company claimed that it was not warned of the new penalty system. An unfavourable comparison was made with the VAT default surcharge regime (which does send out reminders).
- The penalty of 4% was excessive for a first defence.
- The taxpayer should have been aware of the new penalty regime
- Considerable contact was made with the taxpayer; it should have known
The findings and decision of the Tribunal
- The taxpayer appeared to accept that it has been late in making payment. Although it could not confirm HMRC's bundle having received it so late.
- HMRC's system sent out a late payment warning in June 2010. HMRC kept no copies. The taxpayer did not agree that it had received one.
- No evidence was provided as to whether penalties were discussed by HMRC in other contact with the company during the year.
- The taxpayer was expected to have full access to HMRC's website, read all Employer bulletins, know about the Business link website and have read the Employer CD.
- Para 11 of Schedue 56 says that HMRC “must” assess a penalty.
- Para 9 adds that HMRC may reduce penalty in special circumstances. Inability to pay is not a special circumstance (although it may provide grounds for reasonable excuse).
The Tribunal found that it believed HMRC and that a reminder had been sent and that there were no mitigating circumstances. It confirmed the penalty.
The Tribunal did not consider the following matters, this is simply because they were not raised or argued:
- If the company had been fully appreciative of the rules, it could have juggled its payments and possibly avoided anything more than a 1% penalty.
- The penalty warning was accepted by the Tribunal as being sent, despite the fact that the taxpayer denied receiving it. HMRC's postal system is widely known to be unreliable and when post does arrive it may be up to several months late. It would be odd to find that its postal system was reliable in this case.
- HMRC’s tactics before the hearing are questionable: it did not provide its bundle until the day of the hearing. The taxpayer’s accountant was then put into the position of either asking to adjourn the hearing and wasting everyone's costs in attendance, or proceeding but now being backfooted because he had not had time to examine the bundle in advance.
- Proportionality and unfairness: there are a range of issues. The Tribunal shuffled about in considering whether the penalties were proportionate and did not consider whether HMRC is being as fair as we would expect a public body to be in its application of the law. HMRC can and does make concessions - hence various soft landings for certain penalties.
Points worth considering on proportionality and fairness may include:
- How many payments were actually no more than a few single days late?
- How does the regime stack up in view of the assurances that these penalties are not a revenue raiser; the penalties are excessive in terms of lost interest to the taxpayer and the system is supposed to change taxpayer behaviour. None of HMRC's officers making contact with the company during the year apparently raised the issue which seems stange and so behaviour in the period was incapable of change.
- What of the fact that penalties may have been lower if payments were allocated differently?
The Tribunal might have dealt with some of these points under its powers to consider the special circumstances rule as the new regime beds in but this time it was not asked to.
And finally, there is whole matter of Jussila v Finland  STC 29 which is being raised regularly by one First Tier Tribunal Judge, Geraint Jones QC, who has heard the lion's share of appeals against tax penalties.
- In the context of default surcharges and penalties being levied against a taxpayer, the ECJ determined that Article 6 of the European Convention on Human Rights was applicable as such to penalties and surcharges.
- So it is for HMRC to prove that a penalty is due and this requires HMRC to provide proof of default.
- As HMRC was late in bringing its bundle to this hearing it appears that no one was capable of checking some of its evidence, and HMRC does not obtain a "Proof of posting certificate" and so there can be no certainty that it did send out anything that it said it did . This again seems unsatisfactory.
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