Since 6 April 2015 employment intermediaries have been required to make quarterly reports to HMRC of payments made to non-payroll workers placed with third parties (see our newsletters: 9 July and 6 August 2015). If those reports are not submitted on time HMRC can impose stiff penalties (see our newsletter on 20 October 2016).
Some of those penalties are now being challenged at the first-tier tribunal, and in the four cases we have seen the taxpayer win the appeal, so the penalties were cancelled.
The reasons given by the judges in accepting the appeals are interesting as they could apply far more widely.
Penalty not correctly issued
In three cases: Expion Silverstone ltd, A* Education, and Tarrant Howl Ltd, the judge decided that there was no evidence that an officer of HMRC made the penalty determinations. The court found that in each case the penalty was issued automatically by a computer, and as the computer is not a real officer of HMRC, the penalties weren’t valid.
It is worth using this argument in cases involving penalties which have been issued automatically for late or non-submission of returns in other situations, as the same underlying law in TMA 1970 will apply.
Not an employment intermediary
In Leverton Search Ltd the judge found that the taxpayer was not a “specified employment intermediary”, as at no point in the periods covered by the penalties did the company supply more than one individual to work for a third party. This is the exemption which takes personal service companies out of the requirement to submit reports as an employment intermediary.
It is always worth checking the detailed conditions of the legislation, as HMRC don’t always do so.
Written by the Tax Advice Network