HMRC explains the 4-month delay in issuing P35 penalty noticesFriday, September 30th, 2011
HMRC responds to severe criticism by First-tier Tax Tribunals over the policy of waiting until September to penalise employers who did not file their P35s by the May deadline.
The following is an extract from the latest weekly informal update (dated 23 September) from HMRC to employer representatives.
The 2010-11 Employer Annual Returns (P35 and P14s) were due by 19 May 2011. These returns are now over 4 months late and HMRC has started to send penalty notices if our records indicate that we have not yet received a return.
The penalty will be £100 per 50 employees for each month your return is outstanding, from 20 May 2011 to 19 September 2011. So, an employer with 50 or less employees will receive a £400 penalty.
Employers who have a return to make and have not sent it yet should send it without delay.
Appealing against a penalty
An employer who wishes to appeal against the penalty notice must write to the office shown on the notice within 30 days stating why they think the penalty notice is wrong.
The vast majority of employers file their end of year returns on time.
The timetable for issuing penalties is designed to allow a reasonable period for employers to tell us they have no return to make:
- This avoids penalties being issued to customers who did not need to operate PAYE in the year concerned, but who did not let us know until after the deadline
- This also provides time for HMRC to make sure all returns and ‘no return to make’ notifications received by the annual deadline are processed.
The comments provide an explanation of why employers who failed, without having a “reasonable excuse”, to file their PAYE year-end returns by the 19 May deadline are not penalised until the following September, by which time the penalty has accumulated from £100 to £400 (in the case of employers with up to 50 employees). HMRC has been severely criticised by some First-tier Tax Tribunal judges in a number on recent appeals against such penalties for not issuing penalties earlier.
For example, one judge stated that this practice falls “very far below the standard of fair dealing and conscionable conduct to be expected of a manifestation of the State”. He also commented that, “in our judgement, HMRC has neither acted fairly nor in good conscience” and that “it is no function of the State to use the penalty system as a cash generating scheme”. The judge suggested that HMRC should either
- send a reminder soon after 19 May in each year when it knows that a default has taken place or, more likely
- soon after 19 May each year, issue a £100 penalty notice which would levy the penalty then due and also have the effect of acting as a reminder before further monthly penalties are incurred.