Taxman criticised for delays in issuing penalties

THE TAXMAN has been unfairly delaying the issuing of penalties, which has resulted in fines stacking up for the taxpayer, recent tribunal rulings have found.

In a recent case, Hok Limited v HM Revenue & Customs, Geraint Jones QC heavily criticised HMRC for failing to send out a £100 penalty notice, which would have informed the company that it had failed to file its employer’s end of year annual returns in time. The appellant said that its only employee had ceased employment in that tax year but acknowledged fault for failing to send the original return.

However, the company claimed that had the original penalty been sent out earlier, it could have rectified this matter and avoided the further £400 fine levied by HMRC.

Jones said: “There can be no logical reason whatsoever for HMRC to delay sending out a penalty notice for four months so that, in effect, a minimum penalty of £500 will be levied unless the taxpayer has unilaterally realised that it has failed to undertake the necessary filing.”

A computer system “could easily be set” to issue a single £100 penalty after the deadline for end of year annual returns has passed, Jones said.

“That is the course that a fair organ of the state, acting in good conscience towards the citizens of the state, would adopt,” he added.

In a separate case involving HMD Response International, a small charity, the fines involved were the same as in Hok Limited. Jones used the same phrasing as in the Hok case. HMRC has the onus of proving that the annual return was not filed, he added.

It this case, Jones also strongly criticised the taxman for sending out threatening letters alleging that the charity had been “ignoring efforts” to resolve the issue – allegations that were “quite wrong”, according to Jones. The letter threatened to levy distraint by sending people round to the charity’s premises to seize goods.

“Such high-handed threatening action was not justified. It smacks more of the conduct of a disreputable debt collector than of responsible conduct by an organ of the state. It might have been better if HMRC had concentrated its efforts on dealing with the outstanding Review, rather than taking almost six months to deal with it,” Jones ruled.

Rob Durrant-Walker, senior tax manager at UHY Hacker Young, said: “Weare seeing a steady stream of businesses who have fallen foul of this tactic. Waiting four months whilst the meter is running as a matter of policy to tell someone that their return is late is grossly unfair.”

An HMRC spokesman said: “The vast majority of employers file their annual returns on time. The timetable for issuing penalties is designed to allow a reasonable period for a nil return to be sent in thus avoiding any 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. It also gives time for us to make sure all returns in by the annual deadline have been processed.”