Penalty for Late payment of PAYE challenged on grounds of disproportionality

In the recent case of Franco Vargo UK Limited, the company appealed against a penalty of around £4,500 for the late payment of PAYE for numerous months in the tax year 2011/12.


The appellant company had its head office in Italy. The UK branch of the company was in financial difficulty and was receiving funds from the head office. The appellant’s accountants paid the salaries and informed the company of how much PAYE was payable.

A letter was sent to the accountants saying that PAYE was due for payment, but the appellant was not aware of a PAYE liability being outstanding. Even if they had known they were not in a position to pay the liability until they received funds from Italy.

HMRC had records showing that the appellant had been contacted on several occasions and that messages had been left on an answer phone on one occasion.

Appellant’s case

Mr Earle, a director of the appellant stated that it had not been realised that a problem existed and that the problem had been left too long without any action being taken.

He informed the tribunal that the appellant had no answer phone so it would have been hard for HM Revenue & Customs to have left a message as suggested was the case. He also stated that due to its nature, the business always had someone available to answer its telephone and, as such, any attempts to contact the appellant would have been successful.

Mr Earle claimed that the amount of the penalty was disproportionate and that there was a duty of care on HMRC’s part to inform the appellant.

HMRC’s case

Mrs Orimoloye stated that HMRC had spoken to Mr Newman, the accounts manager, and that no mitigation of the penalties was possible as they had complied with the legislation.

She suggested that the appellant’s accountants should have informed the appellant of the penalty regime and that there had been history of late payments in prior years and that the appeal should be dismissed.


The tribunal found that the penalty was not disproportionate as it was imposed correctly under the legislation.

They also found that Mr Newman, the accounts manager had spoken to HMRC and that the appellant’s accountants should have notified the appellant of a liability being due. However, the tribunal were somewhat concerned that HMRC claimed to have left an answer phone message when the appellant did not possess an answer phone.

The appeal was allowed in part and the penalty in respect to the first 2 of the 11 months outstanding was cancelled as it was accepted that the appellant had no option but to wait for funds from Italy.

The following 9 months penalties were upheld on the grounds that the accounts manager had spoken to HMRC and should have taken steps to understand the situation.