Are HMRC issuing late Tax Penalties to levy larger fines?

Recent tax tribunal rulings have found the taxman guilty of unreasonably delaying the release of HMRC tax penalty notices…

In a recent First Tier Tax Tribunal case the courts heard how HM Revenue and Customs (HMRC) delayed sending a Tax Penalty notice to Computer Services Company, Hok Ltd, until four months after they had failed to file a P35.

HMRC Vs Hok Ltd’s case went to tax tribunal, where Hok Ltd appealed not the initial £100 tax penalty itself, but the ongoing tax penalties of £400 that followed.

The company argued that the £100 tax penalty for failing to file a P35 would have been paid sooner if HMRC had not delayed notification.

Criticising HMRC for failing to notify Hok Ltd of their failure to file an Employer Annual Return (P35) by the tax deadline, Geraint Jones, QC, 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.”

Jones suggested that HMRC could tackle delayed tax penalty notices by implementing a computer system that could automatically send out £100 HMRC tax penalty notices to those failing to submit end of year annual returns on time.

Due to the Revenue’s lack of haste in sending thetax penalty notice to Hok Ltd the tax tribunal ruling surrendered the company’s additional £400 tax penalty; Leaving Hok Ltd with the original outstanding tax penalty of £100 to be paid to HMRC.

In a similar case to Hok Ltd a small UK charity, HMD Response Limited, appealed against HMRC at their first tier tax tribunal hearing in July of this year.

The London based charity was wrongly issued with the same late tax penalties of £500 for apparently failing to file a P35 by the end of tax year deadline.

HMD Response Limited claimed that the ‘missing’ P35 had been filed four months prior to receiving a notification of tax penalties from the Revenue.

In addition the tax tribunal court heard how HMRC has sent the London charity ‘threatening letters’ of the Revenue’s intent to seize goods from the charity’s premises, if they continued to ignore the tax penalty that was issued incorrectly.

Commenting on HMD Response Limited’s tax penalty case, Geraint Jones QC, said:

“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.”

The tax tribunal hearing for HMD Response Limited ruled that HMRC eradicate the £500 HMRC tax penalty fine that was wrongly issued to the small London charity.

HMRC have recently been under pressure by the government to recover taxes lost by the Revenue;

Which questions whether recent tribunal findings and HMRC’s lack of urgency in sending out initial HMRC tax penalty notices of £100 are in fact a bid by the Revenue to levy larger fines?

It is thought that many UK companies may also appeal late HMRC tax penalties issued to them by HMRC.

Kevin Kinsella, of KinsellaTax, said:

“By issuing late tax penalty notices for failing to file an Employer Annual Return, and allowing tax penalties to significantly increase without a company’s awareness, is extremely unfair of the Revenue.

“I would urge company owners to keep an eye on their post this month, as HMRC tend to issue tax penalty notices for P35s in September. This happens time and time again and imposes on the tax payer additional worry and stress, to say nothing of the costs non recoverable by the tax payer!”

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