HMRC’s ineptitude leads to cancellation of penalty

13 August 2018

HM Revenue and Customs (“HMRC”) has lost the first known tribunal case concerning penalties for late filing of full payment submissions (“FPS”) and were provided with a number of learning points from the Judge in the case of J & L Benson Building Services Ltd (“the Company”) v HMRC after failing to provide the appropriate documents.


The Company employed people via Pay As You Earn (“PAYE”) in the tax year 2017-18. HMRC issued late filing penalties to the Company for two consecutive months - June and July 2017, for the amounts of £0.00 and £100 respectively.

HMRC provided a document titled “Default, penalty and appeal details” which was created on 7 March 2018 which included the following entries;


Penalties issued


Penalty assessments appealed


Appeal rejected

The entries on this document only related to the penalty for the period ended 5th July 2017 and did not include details of the penalty for the period ended 5th June 2017.

On 26th September 2017, the Company was issued with a letter by Y Wright (HMRC officer) that stated that the Company had no ‘reasonable excuse’ for the late filing.

A director of the Company requested a review of the decision. The reviewing officer, Miss C H Mayfield, notified the Company of the conclusion of her review in a letter dated 1st December 2017 which was that the decision to charge the penalties was correct.

On 28th December 2017, the Company appealed to the Tribunal.  

Further entries on HMRC’s document titled “Default, penalty and appeal details” which was created on 7 March 2018 were as follows;


The appeal was deemed settled as the Tribunals Service has not notified HMRC of an appeal, so the penalty was released for payment


An appeal was made to the Tribunal Service so “user reopens a rejected and settled appeal”

HMRC provided the following information to the Tribunal;

  • A screen print of the RTI online appeal system dated 8th September that indicated a penalty of £100 and the workers ‘Action: not applicable’. 
  • A screen print ‘Summary of filing failures’ which had two entries that both said that the ‘receipt date’ was 9th July 2017 and ‘payment date’ as 30 June 2017. The number of failures was one, and the action taken was detailed on another page that contained a unique ID (the penalty ID) for the period ended 5th July 2017. HMRC stated that the document shows filing failures for the periods ended 5th June and 5th July 2017.
  • An extract from HMRC’s records for the Company showing the submissions, a reference to their assertion that the Company frequently make payments to their employees before submitting their FPS.

The Tribunal asserted that the Company made payments to its employees in the months of June and July and did not submit an RTI return until 9th July 2017.

The Tribunal also concluded that there was a discrepancy in the documents provided by HMRC – the “Summary of filing failures” detailed two failures involving late payments not made until 9th July 2017 whilst the records HMRC provided detailed four failures involving late payments not made until 9th July 2017.

The Decision

Under regulation 67B of the Employment (Pay As Your Earn) Regulations 2003 (SI 2003/2682) (“The PAYE Regulations”), an employer must deliver to HMRC the information specified in Schedule A1. 

Where an employer fails to make a return under regulation 67B, a penalty may be imposed under Schedule 55 of the Finance Act 2009 (“FA 2009”). Paragraph 18(1)(c) of Schedule 55 FA 2009 requires that the penalty notice must show the period in respect of which the penalty was assessed. The Tribunal was therefore not able to determine if the notice did contain the penalty period because HMRC had not shown them the notice.  A specimen notice was provided.

The grounds of appeal are not listed in the judgement because a copy of the notice of appeal was not included.

The Tribunal also found that HMRC could not rely on section 114(1) of the Taxes Management Act 1970 which deems a notice to be valid if its intent can be clearly understood. The Tribunal felt that the intent could not be clearly understood.

The Tribunal dismissed the penalties on the basis that the specimen notice references the period of penalty assessment as “quarter ended on 5 January [year blank]”. The Tribunal assumed that the relevant period would have been the quarter ended 5th July 2017.

It was the Tribunal’s view that a “quarter” is not the period in respect of which the penalty is assessed as the penalties were in relation to two months ending 5th June and 5th July 2017 and so, there was a failure by HMRC to give the correct period which poses a question regarding the validity of the notices.

The Tribunal was not satisfied that the error in the notice as to the period was not gross or fundamental and referenced the following statement made in the case of Henderson J (Judge) in Pipe & others v HMRC [2008];

… If the Penalty Notices were the documents which founded liability to the penalties, there would be much to be said for the view, echoing Slade LJ in Baylis v Gregory, that specifying the correct dates is something HMRC must get right”.

The penalties were cancelled for this reason.

Aspire Comment

Although the penalties were cancelled due to HMRC’s negligence, the Tribunal did state that should this decision to cancel the penalties due to inaccuracies made by HMRC be challenged, he would have found that the Company did not have a reasonable excuse for the late filing.

In the final comments made by this particular Judge, they said that HMRC made an unforgivable statement in their letter of 26th September 2017:

The law doesn’t define what a ‘reasonable excuse’ is. Our view is that a reasonable excuse is normally an unexpected or unusual event, either unforeseen or beyond your control, that prevented you from reporting your PAYE information on time.

The Tribunal noted that the review letter did not repeat this statement and in fact barely referenced “reasonable excuse” at all and certainly did not attempt to find a definition, merely an assertion that the Company had none. HMRC’s “mantra” poses a risk that an unrepresented person who did in fact have a reasonable excuse which may not fit completely within HMRC’s “view” could be dissuaded from pursuing an appeal on the basis of having a reasonable excuse.

Addressing this fact makes it clear that HMRC does not hold any authority to go beyond the letter of the law and define “reasonable excuse” in line with their own view.

This case is extremely interesting on the basis of it being the first appeal against a PAYE penalty to reach Tribunal, but also as an example that it's not only taxpayers who get punished for making mistakes and getting things wrong!

If you have received a penalty assessment which may be appealable, or if you would like assistance with an ongoing enquiry, please get in touch with Aspire to discuss how we can help.