Penalties for late P35 forms – Foresight Financial Services Ltd v HMRCWednesday, November 9th, 2011
The First Tier Tribunal (Tax) hears appeals relating to tax against decisions that have been made by the Commissioners for Her Majesty’s Revenue and Customs. This decision from the First Tier Tribunal concerns the penalty that was raised by HMRC for the late filing of a P35.
The deadline by which the P35 Return is required at HMRC is 19 May annually. Mr Owen, Director of Foresight Financial Services claims he was first notified to the fact that the P35 had not been submitted by this date following receipt of a Penalty Notice from HMRC in the sum of £400.00, dated 07 September. In a letter to HMRC, Mr Owen conceded that the P35 Return for 2009/10 was not submitted until 21 October 2010, though he believed that it had been sent. He appealed against the Initial penalty (£400.00) and a Final penalty (£200.00), which was issued 01 November. At no time did Foresight Financial Services Ltd attempt to offer any ‘reasonable excuse’ as to why the P35 was late or explain why this continued up to 21 October, when they were alerted to the late submission in September. However, Mr Owen appealed to HMRC on 29 November 2010 against the £600.00 penalties that had been issued.
In the first instance, the Tribunal took Foresight’s letter as admission of delay without reasonable excuse; therefore, the requirement for HMRC to prove that a penalty was due was satisfied. HMRC then sought to impose the penalties as per their published guidance, see below. However, the decision from the Tribunal makes some interesting points about the penalty regime at HMRC:
- The decision stated that there was ‘conspicuous unfairness’ by HMRC in not sending a Penalty Notice until almost four months after the P35 deadline
- If the Notice had been issued promptly after the default was first noticed (i.e. 20 May 2010), the penalty would have been £100.00 and may have alerted the taxpayer to their non-compliance earlier. This would be obvious to ‘a fair minder objective observer’
- The judge made a comparison to the penalties for VAT default cases, where there is a fixed penalty rather than an increasing one month-on-month. In these cases, HMRC issue the Penalty Notices promptly, as they have ‘no interest in delaying sending’ them
- It is the Tribunal’s belief that there is a duty on HMRC to send out the first Penalty Notice not more than 14 days after the 19 May in each year. HMRC computer systems are capable of being set to notify VAT penalties and should be set in a similar way for End of Year Returns
The Penalty was reduced from £600.00 to £300.00 which, in effect, disallowed HMRC charging £100.00 for three months when the ‘conspicuous unfairness’ had been identified.
This is one of a number of cases where HMRC have faced criticism – see Further Information below. In its comparison to VAT, and the use of the phrase ‘done deliberately’, the judge’s strongly worded decision suggests that the reason for the late Notices is to do with revenue-generation, something that was not the intention of Parliament in setting the appropriate legislation governing penalties.
For the sake of completeness, we are pointing you to our article from September 2011 which gave HMRC’s response as to why Penalty Notices were issued in September 2011 for the 2010/11 tax year.