HMRC Sly & Cynical

HMD Response International is a small charity that relied on its accountant to prepare and submit its annual employers PAYE end of year return.

The last date for filing the 2010 P35 was 19^th May 2010 but HMRC claimed that HMD had not submitted the form within this deadline. It wasn't until 27^th September 2010, however, that they decided to inform HMD of this and only then by way of serving a penalty notice for £400 on them.

As the penalty notice was not served in sufficient time for a P35 to be filed prior to 19^th September, HMRC levied a further £100 penalty. The P35 was successfully filed online on 12^th October but there was still the issue of penalties totalling £500 to resolve. 

On 8^th October HMD's accountant wrote to HMRC requesting a review of the penalties which the Revenue eventually replied to in a letter dated 30^th March 2011 but to simply inform that the penalties were to be upheld.

Inexplicably, on the 21^st February 2011, whilst the review was still being considered and well before all avenues of appeal had been exhausted, HMRC issued a threatening letter to HMD falsely alleging that the charity had been ignoring “our efforts to resolve the matter of your outstanding liability”. The second paragraph of the letter contained a warning of levy distraint by sending somebody to the charity's premises to seize goods to be sold at public auction. The Tribunal reproved HMRC as there had been no evidence of any efforts made by HMRC to resolve the matter, with the judge stating, “It smacks of the conduct of a disreputable debt collector than that of responsible conduct by an organ of the state.”

HMD's accountant, who represented them at the Tribunal hearing, produced evidence suggesting the P35 had been filed but admitted that he could not be certain whether this had been successful.

The Tribunal found in favour of HMD and the £500 penalty was set aside as HMRC had not proved the alleged default and even if they had managed to prove it, the charity had established a reasonable excuse for the entire period of the default as their agent had honestly and genuinely believed that the filing of the P35 had taken place on time. Furthermore, had there been no reasonable excuse the penalty would have been reduced to £100 because HMRC had deliberately refrained from issuing a penalty notice until September 2010 so it could demand a higher penalty.

HMRC confirmed that it would not appeal the decision despite holding a different view to that of the judge. The department pointed out that only a small number of disputes go on to be heard by tribunals and those that do, 70%  typically end up in favour of HMRC.