Joint Statement on P35 Fines

Last December I wrote about the problems that some employers were having with HMRC fining them for late submissions of P35s; in fact a court case at the time highlighted the fact that HMRC were holding back their communications with employers, so that the level of fines imposed would be increased.

A loyal reader wrote the following:

"In September this year I was issued with a penalty notice for failure to file my employers end-of-year return on time. 

In my appeal I queried why I had not been informed earlier, when the amount of the penalty would have been less. 

Enough about my own troubles - except that this matter prompted me to do a little research. 

I found that in recent tax tribunal findings, scurrilous behaviour on the part of HMRC has been revealed.

In HOK Ltd and Commissioners HMRC, 22nd June 2011 it was stated in the findings:

'...Thus, HMRC deliberately waits until four months have gone by and does not issue the first interim penalty notice until, as in this case, September of the year of default. 

By that time a penalty of £400, being four times £100 per month is said to be due.....

..In our judgement there is nothing fair or reasonable about in setting a computer system so that it does not generate a penalty notice until four months have gone by..

...It is no function of the State to use the penalty system as a cash generating scheme’. 

In this case the tribunal reduced the penalty from £500 to £100. 

In HMD Response International and Commissioners HMRC, 7th July 2011 the tribunal found that:

‘Even if there had been no reasonable excuse [for late filing] the penalty would have been reduced from £500 to £100 given that HMRC deliberately desisted from sending out a penalty notice until September 2010, by which time it could demand a penalty of £500....'

This appeal was allowed in full and the penalty dismissed. 

Clearly somebody within HMRC is culpable and one wonders at what level the order to ‘set the computer system...’ was given."

The article prompted some lively debate, and one person noted that HMRC had in fact suspended the collection of PAYE penalties.

Several months later and Taxation reports that  HMRC have "pledged" to end the controversy, and provide employers with information that is "timely and more efficient".

In fact HMRC, the professional bodies and charities have issued a joint statement on the matter:

"The joint initiative between HM Revenue & Customs (HMRC), the professional bodies and tax charities*, launched in late 2011, set a number of service objectives for delivery during 2012.

One of these was to work together to address concerns about the delay in informing employers that their PAYE end-of-year returns are late, and therefore subject to penalties.

The background to this issue is that where employers do not file their annual P35 return by 19 May, they incur penalties of £100 per 50 (or fewer) employees for every month (or part month) that their return is late.

In some cases, employers were unaware their returns were late until they received a first penalty letter in September covering four months’ worth of accrued penalties.

We can now announce a number of agreed measures to deal with this problem.

To help employers comply with their obligations, HMRC will:

• Change the date when we issue the “Notification to complete form P35 Employer Annual Return 2011/12” from mid-February to mid-March 2012, so that employers will receive it much nearer to the end of the tax year.

• From 28 April 2012, where we believe a 2011/12 P35 remains outstanding, we will issue an “Employer Annual Return Reminder”.

• From 31 May 2012, we will introduce a “P35 Interim Penalty Letter” which will be issued over a five-day period, so that it reaches employers within a month of the filing deadline. The letter will state that the employer has incurred a late return penalty and explain what to do to avoid it increasing. We have worked together with the professional bodies on the content of this letter and it has been tested on employers and payroll agents to make it clear and employer -focussed.

• Improve the online guidance for submitting P35s online, including specific advice about the test-in-live service to reduce the number of employers who believe their test submission is the live submission. The on-screen messages within the HMRC online product will also make it much clearer that even when a successful test transmission has been made, a live transmission is still required. We would encourage those using commercial payroll software (where the text of test/ live messages may vary) to sign up for HMRC’s email alert facility to help them avoid this problem.

• Instruct Employer Helpline staff to tell employers about filing dates when setting up new employer schemes, to help them avoid a penalty.

• For next year, improve the information on the P35 and the reminders to include a warning that the first penalty notice will cover 4 months.

Taken together, these measures should help employers to avoid incurring unnecessary penalties and significantly reduce the number of cases where penalties in excess of £100 are charged."

The professional bodies et al are all heartily congratulating themselves about this. As ever, I welcome views, comments and opinions from the coalface (ie HMRC staff and employers).

Tax does have to be taxing.

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