Thornton and Others (t/a A* Education)

JurisdictionUK Non-devolved
CourtFirst Tier Tribunal (Tax Chamber)
Judgment Date01 October 2018
Neutral Citation[2018] UKFTT 568 (TC)
Date01 October 2018

[2018] UKFTT 0568 (TC)

Judge Nigel Popplewell, Mrs Norah Clarke

Thornton & Ors (t/a A* Education)

Robert Thornton and Adam Thornton, appeared for the appellant

Rhiannon Lewis and John Weaver, officers of HMRC, appeared for the respondents

TMA 1970, s. 100, s. 100B, s. 98 – Income Tax (PAYE) Regulations 2003 (SI 2003/2682), reg. 84F – Burgess; Brimheath Developments Ltd v R & C Commrs [2015] BTC 533 – Wandsworth London Borough Council v Winder [1985] AC 461 – Wandsworth. In Lennon [2018] TC 06453 – Morgan [2013] TC 02720 – FA 2009, Sch. 55 – TMA 1970, s. 113, s. 114, s. 118(2) – Clean Car Co Ltd [1991] BVC 568 – Barrett [2015] TC 04514 – Perrin v R & C Commrs [2018] BTC 513 – Louloudakis v Elliniko Dimosio (Case C-262/99) [2001] ECR I-05547 – International Transport Roth GmbH v Secretary of State for the Home Dept [2003] QB 728 – James v United Kingdom (Application no 8793/79) (1986) 8 EHRR 123 – Wilson v Secretary of State for Trade and Industry [2003] UKHL 40; [2004] 1 AC 816 – R (on the application of R (on the application of Lumsdon) v Legal Services Board [2015] UKSC 41; [2016] 1 All ER 391.

This appeal concerned an appeal against a three penalties amounting to £1,750 imposed by HMRC under s. 98(1)(b) TMA 1970 for the failure to file Employment Intermediaries returns on time.

Summary

A* Education was in the business of supplying teachers and was an “employment intermediary” within s. 716B ITEPA 2003. An employment intermediary must for each tax quarter provide to HMRC specified information relating to payments made to agency workers for whom it has not operated Pay As You Earn (PAYE).

The issue arose for the quarters on 5 August 2016, 5 November 2016 and 5 February 2017 when the appellant supplied the services of two self-employed teachers to schools.

The Appellant had contacted HMRC following a telephone call from a company undertaking a survey regarding the employment intermediaries regime. The call prompted the Appellant to ring HMRC helpline and was informed that HMRC could not know whether the appellant employed teachers who were subject to the employment intermediary regime and therefore there was no need to submit reports going back to 2015. Furthermore, the Appellant suggested the helpline indicated there were no fines or penalties. The Appellant subsequently submitted the relevant returns online (on 22 February 2017). The respondents sent Notifications of Charge and Notice to Pay to the Appellant.

The Tribunal made a number of observations on s. 100 TMA 1970:

  • HMRC have a discretion whether an officer should make a determination imposing a penalty;
  • The determination must be made by an officer of the Board;
  • All officers are authorised whatever their grade;
  • The authorised officer is a real officer.

The Tribunal did not accept that a high-level decision taken by HMRC to impose penalties comprises a determination. The Tribunal found from both the evidence presented and the submissions by HMRC that no officer made the relevant determination of the penalties.

The Tribunal also considered whether there was a reasonable excuse and considered the Appellant did receive Bulletins 54 and 55 in June 2015 and August 2015 although paid insufficient attention to them. The appellant had no reasonable excuse.

The appeal was allowed on the basis that HMRC failed to establish that they have made a valid s. 100 TMA 1970 determination.

Comment

The case reinforces the requirement for an officer to determine a late filing penalty. Given most late filing penalties have in the first instance been generated by an computerised system, it is always worth a practitioner seeking evidence of the officer and process adopted to determine such penalties.

DECISION
Nature of the appeal

[1] This is an appeal against a penalty for £1750 (in fact three penalties; one of £250, one of £500 and one of £1,000) imposed by the respondents (or “HMRC”) under section 98(1)(b) of the Taxes Management Act 1970 (“TMA 1970”) for the failure to file Employment Intermediaries returns (the “Returns”) on time under regulation 84F of the Income Tax (PAYE) Regulations 2003 for three tax quarters ending 5 July 2016 (£250), 5 October 2016 (£500) and 5 January 2017 (£1,000).

Employment intermediaries returns

[2] An employment intermediary within the meaning of section 716B Income Tax (Earnings and Pensions) Act 2003 must for each tax quarter provide to HMRC specified information relating to payments made to agency workers for whom it has not operated PAYE. The information to be provided is specified in regulation G of the PAYE Regulations and must be included in a return in a form prescribed by HMRC. The return must be made no later than the end of the tax month following the end of the tax quarter using an approved method of electronic communication. It is a taxpayer's responsibility to register online, and to upload the return.

[3] Once a taxpayer has filed a return, the responsibility for filing intermediary returns continues for each successive tax quarter until either the taxpayer has not satisfied the relevant conditions, for four successive tax quarters (demonstrated by a taxpayer filing a nil return) or until the taxpayer notifies the HMRC that it is no longer a specified employment intermediary.

Penalties for non-compliance

[4] An employment intermediary who fails to file a return for a tax quarter on time is liable to a penalty under section 98(1)(b) of TMA 1970. The relevant provisions of section 98 of TMA 1970 provide for an initial penalty not exceeding £3,000 and if the failure continues after the initial penalty has been imposed, a further penalty or penalties not exceeding £600 per day.

[5] The amount of the penalty is based on the number of offences in a 12 month period. HMRC's policy is to assess an amount of £250 for the first offence, £500 for a second offence and £1,000 for a third and later offences.

[6] In order to visit a penalty under section 98 of TMA 1970 for failure to deliver a timely return, HMRC must determine the penalty pursuant to the provisions of section 100 TMA 1970.

Facts

[7] Both Robert Thornton and Adam Thornton gave oral evidence. We found them to be honest and credible witnesses and accept their evidence save as regards one matter with which we deal at [48]–[54] below. HMRC tendered no oral evidence.

[8] In addition, the tribunal was given a bundle of documents which included documentary evidence.

[9] From this evidence, we find the following facts:

  • The appellants' business involves the recruitment and placing of supply teachers. Adam Thornton contacts teachers who want to provide either full time or part time teaching. He finds these teachers by a number of means (word of mouth, websites, answers to advertisements put out by the appellant etc.).
  • He then contacts local schools to see whether they have teaching needs, and then supplies the appropriate teacher to fulfil those needs.
  • The appellant contracts with the school to provide the teachers. Payment for the supply of those teachers is invoiced by the appellant to the school. The appellant then pays the teacher (mainly under deduction of PAYE and NICs).
  • The issue in this case has arisen because, in the quarters under appeal, a number of teachers were self-employed.
  • At some time in those quarters, the appellant supplied the services of two self-employed teachers to schools. It was therefore an employment intermediary for each of those periods as it satisfied the statutory criteria set out in regulation 84E (in other words, at some time in the relevant quarters it was an agency supplying more than one individual to a client, payment to those individuals were made without deducting tax at source under PAYE, and the supplies of those individuals was not on the continental shelf).
  • The appellant should, therefore, have submitted returns for these three quarters on 5 August 2016, 5 November 2016 and 5 February 2017.
  • In February 2017, Robert Thornton received a telephone call on his home number from a company which was undertaking a survey regarding the employment intermediaries regime. They questioned whether the appellant was an employment intermediary and, having had that concept described to him by the survey company, Robert Thornton thought that the activities of the appellant might mean that they were an employment intermediary.
  • That prompted him to ring what he understood to be an HMRC helpline and he spoke to somebody at HMRC called Andy on 22 February 2017. He was told by Andy that HMRC could not know whether the appellant employed teachers who were subject to the employment intermediary regime and therefore there was no need to submit reports going back to 2015.
  • However, notwithstanding that he thought there were no fines or penalties, Robert Thornton then submitted the relevant returns online. He did this on 22 February 2017.
  • On 24th and 27th February 2017, the respondents sent Notifications of Charge and Notice to Pay (the Notifications) to the appellants. These related to the first two failures. As regards to the third failure, a Notification was sent to the appellant on 24th February 2017, but it charged the incorrect amount. It was subsequently withdrawn by the respondents and a Notification in the correct amount was issued to the appellant on 27 February 2017.
  • HMRC describes these documents as late reporting penalties. The evidence of these in the bundles each comprises a...

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2 cases
  • Heacham Holidays Ltd
    • United Kingdom
    • First Tier Tribunal (Tax Chamber)
    • 14 October 2020
    ...the firm became aware of the oversight. The penalty is disproportionate as there is no liability: Thornton & Ors (t/a A* Education) [2018] TC 06742 (Thornton) That no notice of the penalty was issued as required under para 4(1)(c) of Sch 55: Advantage Business Finance Ltd [2019] TC 0692......
  • Tarrant Howl Ltd
    • United Kingdom
    • First Tier Tribunal (Tax Chamber)
    • 31 October 2018
    ...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 ......

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