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In Hok to HMRC? Penalties for late P35s
Hok Limited (which reluctantly had a starring role in [2011] UKFTT 433) did not think it needed to file a P35 for 2009/10. It had a rude awakening when it received a penalty notice in late September 2010 telling it of an automatic penalty of £400. It duly filed its P35 within a few days: but by that time it had incurred a further £100 in penalties which HMRC duly assessed.
Of course, HMRC knows by 20 May whether an employer has failed to submit a P35. It could easily issue a penalty notice immediately. But it is (or at least was) HMRC’s practice to delay sending out penalty notices until rather longer has elapsed, by which time several months’ penalties have racked up. This is rather like a police car following a driver through several speed traps and waiting till enough penalty points have clocked up for an automatic disqualification (not, we are sure, that the boys in blue would stoop so low: they are not, after all, tax inspectors...).
The Tribunal chairman was unimpressed: "HMRC is an organ of the State. It is no function of the State to use the penalty system as a cash generating scheme. The penalty system has a legitimate aim, which is to ensure that appropriate filings take place in good time and to discourage default. Given that that is the legitimate aim, it is inexplicable why HMRC deliberately delays sending out a penalty notice for four months, with the effect that a penalty for five months becomes payable, that is, £500. In our judgement it would be a very simple matter for HMRC to set its computer settings so that a default or penalty notice was sent out immediately after the 19 May in any year, instead of some four months later. That might generate less penalty cash for the State, but it would be fair and conscionable as between the taxpayer and the State (acting by HMRC)."
Jolly well said, sir. Unfortunately, HMRC are unabashed and will be appealing. Meanwhile, our advice to clients whose first intimation that a P35 has been overlooked is the receipt of what amounts to an initial penalty of five times the statutory maximum is to appeal.
