Typically, PAYE has been described as an ‘approximate’ method of collecting tax due, which remained the ultimate liability of the employee.
Recent judgements, including the case of Paringdon Sports Club, suggest more of the risk may fall on the employer.
In addition the risk may be worse with the current HMRC penchant for penalties. Many advisors will be familiar with their tendency to seek around 15% extra tax for relatively minor ‘careless’ errors. This represents increased risk for business and their advisors.
There are methods related to potentially mitigating or suspending such penalties.
To avoid embarrassment and excessive cost a prudent review may seem sensible?
Whilst most businesses operate routine PAYE relatively easily with the backing of software, experience suggests that ‘unusual’ or one off events can cause problems.
These days such errors can lead to expensive penalties, so procedures should be put in place to check the correct treatment on one off matters and if necessary take advice.
On the penalty front the case of P Steady shows that it can be worth appealing against a penalty imposition. In that recent case the taxpayer managed to get a penalty suspended where, by oversight he had put down bank interest earned in incorrect years. The Tribunal said ‘The mere fact that this is an error in a tax return does not mean that a taxpayer has been careless’. They went on to say, ‘To levy a penalty on a taxpayer who hereto has had a good compliance record over many years and then refuse to consider suspension of those penalties does not reflect well on HMRC’.
As always thinking of the correct technical position makes sense.
In the recent case of J Day & A Dalgety, two taxpayers had sold three properties that they owned together. The case concerned negligence and penalties for carelessness, as they did not include any details of capital gains relating to the property sales on their returns. They argued that this was because the gains were below the annual exemption and therefore did not realise that they needed to be included.
One of the taxpayers also claimed that one of the houses sold was their only or main residence and that Private Residence Relief (PRR) should have been available.
HMRC raised discovery assessments and levied penalties for carelessness on both taxpayers, which they appealed.
The First-tier Tribunal agreed that the taxpayers had been careless in not including details on the returns. The taxpayers made a number of errors in their calculations, including attempting to deduct mortgage fees, claiming they were deductible under TCGA 1992, s 38(1)(c). However, the tribunal found that such costs were not included in the list of “incidental costs” in s 38(2) and were therefore not allowable.
In terms of the PRR claim, the tribunal found that the first taxpayer had not lived in the property with any degree of permanence or continuity as required by the relevant case law (Goodwin v Curtis  STC 475). No notice had been given to HMRC or to his employers that he had moved house and no invoices were addressed to him at the property.
The Tribunal dismissed the taxpayers’ appeals, agreeing with HMRC that both taxpayers had been negligent in preparing their tax returns by not including details of the property disposals.
It is important to ensure that proper care is taken with filing self-assessment tax returns and all relevant sources of income or gains are included where required in order to mitigate the risk of penalties. Eaves and Co would be happy to assist if you or your clients have any concerns.
Where a taxpayer is subject to a penalty from the tax year 2008/09 onwards, HM Revenue & Customs (HMRC) have the power to suspend a penalty for a careless inaccuracy.
However what many people may not be aware of is that in addition to HMRC granting a suspension it is also possible for the taxpayer to request that they do so.
If HMRC refuse to suspend a penalty it is possible to appeal to the First-tier Tribunal, but the tribunal can only allow your appeal if it thinks that the HMRC decision is flawed.
A complete failure to exercise the discretion, i.e. not to consider a suspension in light of the taxpayer’s circumstances, is generally considered a flawed decision.
There is however nothing which prevents HMRC adopting policies or practices which indicate factors it may take into account when exercising its discretion; so long as they do not prevent consideration of individual circumstances.
HMRC’s instruction to staff is to only consider a suspension where they can set at least one condition that, if met will help the taxpayer to avoid a further penalty.
Some officers claim that HMRC cannot suspend a penalty for errors involving capital gains tax (CGT). This is incorrect as there is no reason that HMRC cannot suspend a penalty in relation to CGT providing at least one condition can be set.
Case law however has proved inconclusive. In Fane v HMRC the tribunal accepted HMRC’s view that a one-off error was not suitable for a suspended penalty, however in Boughey v HMRC the tribunal disagreed and overturned the decision not to suspend. Both tribunals said that the suspension conditions need not relate to the specific error.