Tarrant Howl Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 31 October 2018 |
| Neutral Citation | [2018] UKFTT 640 (TC) |
| Date | 31 October 2018 |
| Court | First Tier Tribunal (Tax Chamber) |
[2018] UKFTT 0640 (TC)
Judge Richard Thomas
Income tax – Employment intermediaries returns – Income Tax (Pay As You Earn) Regulations 2003 (SI 2003/2682 or PAYE Regulations), reg. 84F – Penalties for failure to file nil returns for two periods after filing of first return with information – TMA 1970, s. 98 – Whether officer of HMRC made penalty determinations – Whether ignorance of requirement to file nil returns reasonable excuse – Whether reliance on third party reasonable excuse – Appeal allowed.
The First-tier Tribunal (FTT) cancelled penalties issued for the late filing of employment intermediaries returns because HMRC's guidance was invisible and complex.
Tarrant Howl Ltd (the appellant) filed a return for the quarter ended 5 July 2017 (Q1) under the Income Tax (Pay As You Earn) Regulations 2003 (SI 2003/2682 or PAYE Regulations), reg. 84F, within the required one month deadline. The returns for Q2 and Q3 were filed late because the appellant did not realise that it was required to submit nil returns when it did not have any freelance workers who required declaring in a report.
HMRC initially issued a £250 late filing penalty under TMA 1970, s. 98, for the appellant's failure to file a return under the PAYE Regulations, reg. 84F, which the appellant appealed.
HMRC then wrote to the appellant to say that the penalty determination previously issued for £250 had been withdrawn, and that two new determinations would be issued for Q2 and Q3. HMRC accordingly issued a penalty of £250 for the appellant's failure to file a return in respect of Q2 by the due date of 5 November 2017 and a penalty of £500 for the appellant's failure to file a return in respect of Q3 by the due date of 5 February 2018. Again, the appellant appealed.
The FTT noted that once one return has been made by a specified employment intermediary (SEI), then it seems returns must continue to be made by an SEI for following quarters even if there is no relevant information to report (reg. 84F(5)). This making of nil returns continues until there have elapsed four quarters where nil returns were required or, if earlier, the agency notifies HMRC that it is no longer a SEI.
The FTT found that in respect of the first penalty issued it was for Q3 and had not been validly withdrawn. However, considering the date it was made (approximately one month after the due date for the quarter) the FTT cancelled it as not having been determined by an officer of the Board as required by TMA 1970, s. 100(1), finding instead that it had been issued automatically by a computer. In coming to this decision, the FTT referred to the case of Thornton (t/a A* Education) [2018] TC 06742.
In relation to the second and third penalties, the FTT rejected HMRC's submission that information on the Gov.uk website “clearly” showed that an agency must file a nil report. Judge Thomas noted that “as someone who has just examined the legislation and the ESM as well as the information on the Gov.uk website I have found the only passage that purports to explain the circumstances in which a nil report is required … more than a little impenetrable”. Judge Thomas also noted that he was used to construing complex law and was reasonably, but not wholly, confident that the effect of reg. 84F(5) was that nil returns were required for Q2 and Q3. But he also pointed out that he was not the kind of person the web guidance was aimed at: the appellant (and their payroll agency) was. Even though the appellant did not read HMRC's guidance, even if the appellant had managed to find it and read it, Judge Thomas did not think it would clearly have understood that the appellant had to send nil returns for Q2 and Q3. Given the invisibility and complexity of the webpages, the FTT found that the appellant had a reasonable excuse for the failure to file the returns by 30 November and 28 February respectively.
The FTT also found that the appellant had a second reasonable excuse, in that it relied on a third-party payroll company to provide it with reports, and that they did so for Q1 and would have expected the third party to tell it that a nil report had to be filed. Judge Thomas likened the appellant's reliance on an “expert” to that in the FTT case of Barrett [2015] TC 04514.
Judge Thomas also made various observations about the legislation concerning the requirement for SEI's to submit returns and the relating penalties and HMRC's implementation of legislation. See para. 92–109 of the decision.
The FTT set aside the penalties issued under TMA 1970, s. 98 for the quarters ended 5 October 2017 and 5 January 2018.
This decision is particularly pertinent given the Office of Tax Simplification's October 2018 Guidance for taxpayers: a vision for the future report in which it identified that HMRC's guidance:
- is difficult for users to find what they want and move around;
- contains conflicting information;
- is unclear what knowledge level it is aimed at; and
- is unclear to what extent it can be relied upon.
For analysis of the main findings and recommendations in the report see Sarah Arnold's article in Tax Update from 24 October 2018.
[1] This was an appeal by Tarrant Howl Ltd (“the appellant”) against two determinations made by an officer of the respondents (“HMRC”) under s 98 Taxes Management Act 1970 (“TMA”) for the appellant's failure to deliver two returns under regulation 84F Income Tax (Pay As You Earn) Regulations 2003 (SI 2003/2682) (“PAYE Regulations”).
[2] HMRC's records show that on a date before 14 March 2018 Tarrant Howl Ltd (“the appellant”) was issued with a notice of determination of a penalty informing them that a penalty of £250 had been assessed for their failure to file a return under regulation 84F PAYE Regulations.
[3] The returns for the three months (“quarter”) ended 5 October 2017 (Q2) and that for the quarter ended 5 January 2018 (Q3) were delivered on 15 February 2018.
[4] On 5 March 2018 the appellant wrote to HMRC giving their notice of appeal against the penalty determination of £250.
[5] On 14 March 2018 HMRC wrote to the appellant to say that the penalty determination previously issued for £250 had been withdrawn, and that two new determinations would be issued for Q2 and Q3. The letter invited further information.
[6] On 16 March 2018 HMRC's records show that the appellant was issued with a notice of determination of a penalty of £250 for their failure to file a return under regulation 84F PAYE Regulations in respect of Q2 by the due date of 5 November 2017.
[7] Also on 16 March 2018 HMRC's records show that the appellant was also issued with a notice of determination of a penalty informing them that a penalty of £500 had been assessed for their failure to file a return under regulation 84F PAYE Regulations in respect of Q3 by the due date of 5 February 2018.
[8] On 4 April 2018 HMRC wrote to the appellant in response to the letter of 5 March 2018 notifying their appeal and said that in the officer's (John Weaver's) opinion the appellant had demonstrated no reasonable excuse for filing late. That was because an reasonable excuse could only exist where an unexpected or unusual event, either unforeseeable or beyond their control, prevented the appellant from sending their return in on time. He added that “we will consider the facts of each case” (presumably to see if there was an unusual etc event). The letter went on to say that the appellant could provide further information, ask for a review or notify the Tribunal.
[9] On 20 April 2018 the appellant responded stating that they would like to appeal against the two “fines” they had incurred and giving reasons.
[10] On 4 June 2018 HMRC gave the conclusions of a review of HMRC's determination of the penalties for Q2 and Q3. The conclusion was that the decision to charge the penalties was correct.
[11] On 30 June 2018 the appellant notified appeals against penalties of £750 to the Tribunal.
[12] The law imposing these penalties is in Part 5 of the PAYE Regulations. The power to make them was enacted by s 18 Finance Act (“FA”) 2014 which inserted a section 716B into the Income Tax (Earnings and Pensions) Act 2003 (“ITEPA”). Section 716B reads:
(1) For purposes connected with Chapter 7 of Part 2 (treatment of workers supplied by agencies) or Part 11 (PAYE), the Commissioners for Her Majesty's Revenue and Customs may by regulations make provision for, or in connection with, requiring a specified employment intermediary–
- to keep and preserve specified information, records or documents for a specified period;
- to provide Her Majesty's Revenue and Customs with specified information, records or documents within a specified period or at specified times.
(2) 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.
(3) For the purposes of subsection (2), an individual works for a person if–
- the individual performs any duties of an employment for that person (whether or not the individual is employed by that person), or
- the individual provides, or is involved in the provision of, a service to that person.
(4) In subsection (1) “specified” means specified or described in regulations made under this section.
(5) Regulations under this section may–
- make different provision for different cases or different purposes, and
- make incidental, consequential, supplementary or transitional provision or savings.
[13] The first regulations made under the powers in s 716B ITEPA were the Income Tax (Pay As You Earn) (Amendment No 2) Regulations 2015 (SI 2015/171) which inserted regulations 84D to 84H into the PAYE Regulations. In what follows a reference to a regulation by one of the numbers in the range mentioned is to that...
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