Exclusions for online filing, PAYE late filing penalties and What HMRC won’t provide

We end this summer not with a bang but a whimper of frustration over HMRC’s changing practices which affect you and your clients. First, we have a work-around for one of the software errors which is blocking online filing of the SA tax return. We review the circumstances in which PAYE penalties will be issued in 2017/18, and finally we have an update on the information which HMRC refuses to provide to tax agents.

Below is just an extract from last week’s tax tips email. To receive the full email when it is published each Thursday, simply follow the link on the right (or below, if you’re reading this on a mobile device).

PAYE late filing penalties

We summarised the position for late filing PAYE penalties in our newsletter on 20 April 2017. This information related to the 2016/17 tax year, but we now have a further statement from HMRC regarding how they will assess PAYE penalties for 2017/18.

The full payment submission (FPS) report is supposed to be filed on or before the day which is the earlier of:

  • the day on which employee actually gets paid;
  • date on which employee becomes entitled to his pay.

Say the employee becomes entitled to his pay on 28th of each month, but in August the payroll was run and payment was made on 29th as 28 August was a bank holiday. In that case the FPS sent on 29 August is deemed to be late as it was submitted after the day on which the employee became entitled to his pay. This rule applies even if the employee was actually paid late, i.e. on 29 August.

In 2016/17 HMRC introduced a three-day grace period for filing the FPS, and in the Employer Bulletin issue 67 they explain that this three-day grace period will continue to be applied for the whole of 2017/18. This is not an extension of the filing period. That “on or before” deadline remains as described above. It represents HMRC turning a concessional blind-eye to marginal and occasional lateness by the employer. If the employer persistently files the FPS late, but within 3 days of the due date, he will receive an online penalty warning from HMRC and be considered for a penalty.

It’s worth reminding clients that late filing penalties start at £100 per month for the smallest payrolls, and rise to £400 per month for payrolls with 250 or more employees. One late filing within the tax year is permitted before any penalty is assessed.

The first PAYE penalties for 2017/18 will be issued in September 2017 for the PAYE periods ending in the quarter to 5 July 2017. Penalties are sent to employers by letter, not by email or GNS message (the electronic messaging service within PAYE online). However, an appeal against the penalty can be submitted through PAYE online, or by letter.

You can appeal on behalf of your client, but don’t forget to take a screen-print of the appeal including the reasons given as there is no print function in the online appeals mechanism.

Deregister for VAT, IR35 for public sector contracts, Penalty notices

Our most recent email contained tips on how to manage a smooth withdrawal from VAT for those clients who are only VAT registered in order to take advantage of that scheme. Clients who have contracts for services with public sector bodies need advice about the new IR35 rules, so we examined the HMRC guidance in this area. Finally, we shared a warning about inaccurate penalty notices.

Below we share just part of one of the above 3 tax tips – see the side boxes on this page to learn how you could subscribe to receive the full 3 tax tips every week.

Penalty notices

HMRC has a number of legacy computer systems, which don’t always talk to each other effectively. This has caused problems with class 2 NIC liabilities disappearing from taxpayers’ records, as we reported in our newsletter on 8 December 2016.

A work around invented by HMRC staff is to issue a temporary NI number for the taxpayer, so class 2 NIC can be paid alongside his SA income tax liability. However, in some cases the temporary NI number has triggered the creation of a duplicate UTR number for the taxpayer.

When the taxpayer’s 2015/16 tax return was submitted only one of their UTR numbers recorded the receipt of that return, so the HMRC computer has issued a late filing penalty for the other duplicate UTR number. What a mess! Your only option is to appeal against the incorrect penalty notice.

The HMRC computer also has its calendar in a knot. The £100 late filing notices for 2015/16 SA returns should have been dated 22 February, but were actually dated 15 February, and did not arrive with taxpayers until early March. If you have only just received a penalty notice for your client, you can submit a late appeal. A mistake by HMRC in the detail of the penalty notice – such as with the issue date, should be accepted as a reasonable excuse of making a late appeal.

Apprenticeship levy, Immigration skills charge, Appealing penalties

Two new levies come into effect on 6 April 2017: the apprenticeship levy and the immigration skills charge. These can apply to smaller employers as well as larger ones. In our latest tax tips we outlined the principles for both of these new taxes. There are also two developments relating to how penalties can be calculated and appealed.

Below we share just part of one of the above 3 tax tips – see the side boxes on this page to learn how you could subscribe to receive the full 3 tax tips every week.

Appealing penalties

The tax penalty system contains two broad categories of penalties; those for late filing or late payment which increase according to the delay in filing or payment, and behavioural penalties which relate to errors in documents, failure to notify and under-assessment by HMRC.

Late filing or payment

These penalties are based on the period of delay of the filing or tax payment, which is easy to quantify. The second element of the penalty is either a fixed charge or the tax liability. It is always worth checking that both of these elements have been correctly measured before they were included in the penalty calculation, as HMRC does make mistakes.

If the calculation is correct, the taxpayer must demonstrate a reasonable excuse for the delay as grounds for an appeal against the penalty. You can help your client frame their story which supports the reasonable excuse, and suggest which documents need to be retained to send to HMRC, should they undertake an internal review of the appeal.

The factors making up the reasonable excuse can include the actions or inactions of HMRC, as demonstrated in the VAT surcharge case of MOC (Scotland) Ltd v HMRC. In that case the company received such poor service from HMRC that the tribunal decided the taxpayer did have reasonable excuse for late payment.

The taxpayer can now make an online appeal against late filing or late payment penalties relating to their 2015/16 SA return. You can’t submit an online appeal on behalf of your client, as the online mechanism hasn’t been opened up to tax agents. However, you can still submit a paper appeal for your client using the form SA370.

Behavioural penalties

The first element of a behavioural penalty is a percentage based on whether the taxpayer’s mistake was careless, deliberate, or deliberate and concealed, which is further adjusted depending on how the error was disclosed. This percentage is multiplied by the potential lost revenue (PLR).

Our tax enquiry experts can help you check whether penalties for tax return mistakes can be challenged or reduced.