Tax tribunal clarifies status of P35 confirmation emailThursday, May 26th, 2011
Believing an email from HMRC that says the same thing whether an employer makes a test submission or a live submission is not a “reasonable excuse”.
In a decision given on 28 April in the case Law Costing Ltd v Revenue & Customs, the First-tier Tax Tribunal ruled that the confirmation email, which is sent to an employer after filing PAYE year-end Returns online and has the same wording for both test and live submissions, cannot be relied on as confirmation that the Return has been successfully filed.
P35/P14 Returns may be filed online as either “test” or “live” submissions. If a test submission fails, the employer is informed immediately of that fact. If a test submission is successful, the employer receives a “Successful Receipt of Online Submission” email from the Government Gateway stating:
“Thank you for sending the PAYE End of Year submission online.
The submission for reference XXX/XXXXX was successfully received on XX-XX-XXXX. If this was a test transmission, remember you still need to send your actual Employer Annual Return using the live transmission in order for it to be processed.”
On receipt of that email, the employer must then resubmit the Return, this time as a live submission. The wording of the email sent on receipt of the live submission is identical to that sent on receipt of a successful test submission.
On 5 April 2010, the payroll manager of Law Costing made a test submission and received the email confirming successful submission. She resubmitted the Return on 9 April, believing that this time she was making a live submission, and received exactly the same email acknowledgement. Four months later, at the end of September 2010, HMRC issued a penalty notice for £400, on the basis that Law Costing had failed to file the P35 Return. The penalty was calculated as 4 months at £100 per month. Law Costing subsequently filed the Return again and appealed against the penalty notice, claiming that the Return had, in fact, been correctly filed before the 19 May filing deadline, and that the “successful receipt” email provided a “reasonable excuse”.
While investigating the matter, HMRC asked its Online Services section whether it is possible for its computer systems to accept a live submission as a test submission. The answer was as follows (wording as reported):
“Simply put, no. There are only two ways for a return to show as a Test: either the incoming XML contains the Test flag set to 1 or CEPT manually intervene in ERSS /ChRIS and change it (the latter is rare and is fully auditable and didn’t occur in the customer’s case).
The HMRC online acknowledgements do differentiate between Live and Test — the customer is referring to the confirmation e-mails, rather than the responses to their software. The response to their software is immediate and unequivocal. It states that these submission failed as it was a Test would have been successful if sent in Live.
This online response to their software is legal receipt, the e-mail is just a courtesy to assist customers.
If they wish to complain that they didn’t know they were submitting Tests prior to submission this should be addressed to their software provider.
Incidentally, I can confirm that the response to the second Test submission was also received by their software.
I can also confirm from our tracking that their software was sent and picked up the success response on 2 November (there is a handshake” where the software confirms the receipt of the response). This response was picked up immediately. If it was not displayed to the customer, again, that’s not our fault! They may not have had an e-mail, but that would depend if they entered a valid e-mail address in their software and, of course, it’s only a courtesy e-mail.”
This explanation describes the confirmation email from the Government Gateway simply as a “courtesy” email. In contrast, reference is made to an “online response” that is sent to the employer’s payroll software as soon as a submission has been validated. This, according to HMRC, is the only official confirmation that a submission has been received.
The Tribunal decided that, as HMRC’s computer records are clear, Law Costing had, on the balance of probabilities, mistakenly made a test submission on 9 April. The email confirmation did not was not intended to confirm that a live submission had been made. Law Costing did not, therefore, have a “reasonable excuse” and the appeal was dismissed.
The Tribunal did, however, comment strongly on the four-month delay in notifying Law Costing that the P35 Return had been received, stating
“Since the penalty is time-based (£100 per month) the notification is made at a time when a significant amount of penalties has already accrued. We have no jurisdiction to interfere (our jurisdiction is limited by section 100B TMA), but wish to record that the system does not seem to operate satisfactorily and the taxpayer should be notified at an earlier stage that Form P35 has not been filed by the due date and that a first month penalty has been incurred.”
A few comments need to be made on this decision.
The use of the “balance of probabilities” test is inconsistent with recent First-tier Tax Tribunal decisions which have required HMRC to prove that no live submission had been made.
How HMRC’s “online response” is handled by an employer’s payroll software depends on how the developer has chosen to display this almost immediate response to a submission. For example, the payroll system used by the author displays the message as soon as it is returned to the computer and then files it in a folder with the program files. This online response message is in “XML” format and may not be readily understood by users, although the wording “The EOY Return has been processed and passed full validation” is quite clear in the message.
It has to be questioned, however, whether it is appropriate for HMRC to blame system developers for the problem when an identically worded email is sent to the user whether a submission is “test” or “live”. This is not a new issue and was commented on by HMRC in July 2007 in Notes for Payroll Software Developers (link below) in response to analysis that showed that
“employers were not clear on how to use the ‘Test-in-Live’ facility of their software and that they believed they had sent their actual return based on the Government Gateway email message.”
Commenting on the wording of the email, HMRC then stated:
We made a change to the Government Gateway email for 2006-07 to include a warning about test Returns and are considering further changes for 2007-08. We accept that the current message,
‘The submission for reference XXX/XXXXX was successfully received on XX-XX-XXXX. If this was a test transmission, remember you still need to send your actual Employer Annual Return using the live transmission in order for it to be processed.’
has limitations because not all developers offer ‘Test-in-Live’ and some employers found this message confusing.
A comparison with the current email message shows that the wording is the same now as it was in 2007 and is clearly still causing confusion. And employers are being penalised as a result.
A number of other appeals for failure to file P35s have also been rejected by the First-tier Tax Tribunal, with the Tribunal taking a hard-line approach to the issues and refusing to accept that any of the employers had provided a “reasonable excuse”. Links to these additional cases are also given below. They all share the same £400 penalty as a result of HMRC only taking up the issue after four months.