Employment intermediary escapes late filing penalty

HMRC blunder lets recruitment firm off the hook

For over three years now, employment intermediaries such as agencies, employment businesses etc, have had to file returns detailing those whom the intermediary believes it has a legitimate reason for engaging workers on a self-employed basis.

Returns are filed electronically each quarter as follows:

Penalties

Where a report is late, a penalty is charged. The amount of the penalty is based on the number of offences in a 12-month period:

• £250 – first offence
• £500 – second offence
• £1,000 – third and later offences

Continued failure to send reports, or where reports are frequently sent in late, can result in daily penalties of up to £600 being imposed for every day they are late.

Recruitment business Expion Silverstone Ltd, had filed late returns for the first three quarters of the 2016-17 financial year. Consequently, HMRC issued the company with three penalty assessments, all on 19^th April 2017, for £250, £500 and £1,000.

S.100(1) Taxes Management Act 1970 states that an officer of the Board [HMRC] may make a penalty determination, and the onus of proof lay with HMRC to justify the imposition of the penalties.

The only evidence the department put forward was a computer printout. This was insufficient, as the Revenue did not constitute an officer, nor a real officer at that. The Tribunal therefore issued directions to HMRC requiring them to provide the following evidence:

1. name of the officer who made the penalty determination;
2. details and evidence of how and when that officer made the determination;
3. the process by which the HMRC computer was then instructed to send notification to Expion Silverstone Ltd; and
4. how the determinations were subsequently recorded on Expion’s computer records.

After being granted an extension of time by the Tribunal to comply with the direction, after two months all the Revenue could offer was:

“Although HMRC has been granted a time extension it is still not possible to provide a detailed response to these directions. These penalties were automatically issued by HMRC’s computer systems therefore we cannot provide a named person in respect of individual cases.

The computer recorded the penalties and issued penalty notices on 19/04/2017 in accordance with HMRC’s policy in respect of late filing of Employment Intermediary returns.”

This was a stark admission that the penalties were automatically issued by HMRC’s computer systems, strongly suggesting that no Revenue officer was involved in either the determination of the penalties nor in sending out the subsequent assessments. As such, the Tribunal concluded that as no real life officer of HMRC had made the penalty determinations, then they were invalid and Expion’s appeal was allowed.

The moral of this case is to not simply trust that HMRC are right each time they issue penalty determinations and that they have followed the legislative requirements, although one would fully expect them to do so. The devil is in the detail and should be checked before accepting a penalty at face value.

The full judgment can be found here Expion Silverstone Ltd v HMRC.