Bluu Solutions Ltd

JurisdictionUK Non-devolved
Judgment Date20 February 2015
Date20 February 2015
CourtFirst Tier Tribunal (Tax Chamber)
[2015] UKFTT 0095 (TC)

Judge Anne Redston, Mr Derek Speller FCA

Bluu Solutions Ltd

The Appellant was not represented

Mrs Beverley Levy of HM Revenue & Customs' Appeals and Reviews Unit appeared for the Respondents

Income tax – Penalty for late payment of in-month PAYE – Whether HMRC had advised of the risk of penalties – Whether the case was “criminal” under the European Convention on Human Rights – Whether the company had a reasonable excuse – The scope of HMRC's discretion to consider special circumstances – Whether it must be exercised before the tribunal hearing –Agar Ltd [2011] TC 01625, Algarve Granite Ltd [2012] TC 02142 andMorgan [2013] TC 02720 considered – Whether penalties of £74,418.09 disproportionate – Whether FA 2013 amendment to penalty provisions means original regime was disproportionate –Bank Mellat v HM Treasury (No 2) [2013] UKSC 39, [2014] 1 AC 700 and R & C Commrs v Total Technology (Engineering) Ltd [2013] BVC 1,533 considered and applied – Appeal dismissed.

The First-tier Tribunal (FTT) has dismissed an appeal against a penalty raised under Finance Act 2009 (“FA 2009”), Sch. 56, for late payment of monthly PAYE and Class 1 National Insurance Contributions finding that there was no reasonable excuse for the company's failures to pay on time, neither the penalty itself nor the penalty regime were disproportionate, and HMRC's decision that there were no “special circumstances” that might justify reducing the penalty was not flawed.

Summary

Bluu Solutions Ltd (the company) was late in paying its PAYE in every month of the 2012–13 tax year, HMRC raised a penalty under FA 2009, Sch. 56 and the company appealed. The FTT considered the company's arguments under three main headings, as follows:

Reasonable excuse

The FTT found that the company had no reasonable excuse for the late payments. It had failed to establish that there was either (a) an insufficiency of funds, or (b) that this was caused by events outside its control; it had not only been told in writing about the risk of penalties but also by phone and frequent, clear and timely warnings had also been provided via HMRC's employer bulletins, and even if the company had received no information, that would not have provided it with a reasonable excuse as it was a well established principle that ignorance of the law was no defence.

Special circumstances

The FTT consider the operation of FA 2009, Sch. 56, para. 9 in some detail finding that the use of the word “may” showed that HMRC had been given a discretion and whilst not specifying when HMRC ought to exercise that discretion, the references in para. 9(3) to “(a) staying a penalty, and (b) agreeing a compromise in relation to proceedings for a penalty indicated that HMRC could exercise that discretion at any point up to the conclusion of a tribunal appeal hearing. Furthermore, the wording “may reduce a penalty” in addition to the aforementioned wording indicated that the penalty had to first exist before it could be reduced, stayed or compromised (although it was noted that it would also be possible for HMRC to reduce a penalty before assessment if they were aware of special circumstances). The FTT further noted that para. 15(3) provided that in substituting its decision as to the amount of the penalty for HMRC's, it could rely on para. 9 to a different extent from HMRC “only if HMRC's decision in respect of the application of paragraph 9 was flawed” and in this context, the reference to “HMRC's decision” meant HMRC's decision about the application of para. 9, not HMRC's decision as to the amount of the penalty. In other words, statute envisaged two decisions: one “as to the amount of penalty payable by P” and a second “in respect of the application of para. 9” and although in deciding the appeal the tribunal could substitute HMRC's decision about the penalty with another sum, in making that substitute decision, the tribunal could only take special circumstances into account if the latter decision by HMRC was flawed.”

The FTT acknowledge that their reading of Sch. 56 differed from that of other tribunals who had held that HMRC were required to consider special circumstances before making the penalty assessment, or before making a review decision, and that a failure to do so flawed its decision as to the amount of the penalty, allowing the tribunal to make its own special circumstances decision. The FTT discussed these decisions in turn, the reasoning of the earlier tribunals and set out their reasons for disagreeing and Judge Redston confirmed that her understanding of the statutory provisions has now changed since her decision in Pendle TAX[2015] TC 04240 although even applying the new analysis, the outcome of the case would have remained the same.

Applying this approach to the case, the FTT found that HMRC had considered each of the company's submissions to see if one or more might fall within the special circumstances provision and found that none did. There were no other matters which should have been taken into account and none which should have been omitted from consideration. There was no error of law in HMRC's approach and the decision in respect of the application of the special circumstances provision in para. 9 was not flawed.

Proportionality

Finally, the FTT considered the company's argument that the penalty was disporportionate and again referring to a number of earlier cases found that Sch. 56 was primary legislation and could only be interfered with if “manifestly wrong” or “mainfestly inappropriate” and in the words of R & C Commrs v Total Technology (Engineering) Ltd VAT[2013] BVC 1,533there is noting in the [regime] which leads us to the conclusion that its architecture is fatally flawed. The Sch. 56 PAYE in-month penalty regime was not disporportionate and taking all relevant factors into account including the company's size, the amount of its annual payroll and monthly PAYE payments, the amount of its monthly turnover and its casual approach to compliance, neither was the penalty.”

Accordingly, the appeal was dismissed and the penalty was confirmed.

Comment

The company appealed against FA 2009, Sch. 56, PAYE in-year late payment penalties but was unrepresented at the tribunal hearing and although the company's accountant had submitted the company's arguments in writing and confirmed that the company was content for the hearing to proceed, the FTT found that some of these submissions were “unparticularised” and lacked detail and the company was undoubtedly disadvantaged by not being present to be able to provide further information and explanations. The FTT found that the company had no reasonable excuse for late payment and that neither the penalty itself, nor the penalty regime, were disproportionate, however, perhaps the most interesting aspect of this case is the FTT's analysis of the “special reduction” provisions of FA 2009, Sch. 56, para. 9 and their reading of Sch. 56, which is acknowledged as different from that of other tribunals (including Judge Redson's own earlier decision in Pendle). Other tribunals had held that HMRC were required to consider “special circumstances” before making the penalty assessment (or review decision) but in this case, the FTT found that, in principle, the penalty came first and then HMRC had until the conclusion of the tribunal hearing to exercise their discretion and reduce the penalty for “special circumstances”. Furthermore, the FTT found that the tribunal itself could only take “special circumstances” into account if HMRC's decision on the application of para. 9 was flawed and in this case it was not.

DECISION

[1] This was the appeal of Bluu Solutions Limited (“the company”) against a penalty for late payment of monthly PAYE and Class 1 National Insurance Contributions1 during the tax year 2012–13.

[2] On 4 December 2014 the Tribunal heard and dismissed the company's appeal. We confirmed the penalty of £74,418.09. Shortly afterwards we issued a decision containing a summary of the facts and reasons.

[3] By letter dated 22 December 2014, the company's representative, Francis Clark LLP (“Francis Clark”), requested full written findings of fact and reasons for our decision. This is that full decision.

[4] The letter from Francis Clark also challenged some of the findings and conclusions contained in the summary decision and asked us “to further consider” certain points. We made our decision on 4 December 2014, and the reasons for that decision are now fully set out. If the company wishes to challenge this judgment, it must apply for permission to appeal as set out at the end of this decision notice.

The failure to attend

[5] The hearing of the company's appeal was scheduled to begin at 10.00 am. Parties are asked to arrive at least 30 minutes beforehand. By 10.00am no one had arrived to represent the company. The tribunal clerk called Francis Clark and asked to speak to Mr Tom Roach, the partner who had communicated with HMRC and the tribunal on the company's behalf.

[6] The tribunal clerk was initially told that Mr Roach was travelling, but was then called back and informed that (a) Mr Roach was not attending the hearing; (b) he had put forward all the company's arguments in writing and (c) he asked that the hearing proceed despite the absence of any representative from the company.

[7] We considered rules 2 and 33 of the Tribunal (First-tier Tribunal) (Tax Chamber) Rules 2009 (“the Tribunal Rules”). Rule 33 reads as follows:

Hearings in a party's absence

If a party fails to attend a hearing the Tribunal may proceed with the hearing if the Tribunal–

  1. a) is satisfied that the party has been notified of the hearing or that reasonable steps have been taken to notify the party of the hearing; and

  2. b) considers that it is in the interests of justice to proceed with the hearing.

[8] The company had been notified of the hearing. We had received Mr Roach's submissions in writing and been told that the company was content for the hearing to...

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