‘Obvious potential for unfairness’ in PAYE penalties

Posted: 16th January 2013

HMRCThe first-tier tribunal has acknowledged that the Finance Act 2009 regime, under which penalties are levied for late payment of PAYE and national insurance contributions (NICs), ‘has obvious potential for creating unfairness and leaving some taxpayers with a justifiable sense of grievance’. However, in dismissing an employer’s challenge to penalties totalling more than £15,000, the tribunal has underlined that it has no jurisdiction to decide whether such charges are fair and reasonable, even if the facts point to attenuating circumstances.

The penalties, calculated pursuant to a ratchet mechanism employed by Her Majesty’s Revenue & Customs, were imposed at a rate of 4% of the total sum due after the employer paid PAYE and NICs late on 11 occasions in one financial year. The employer argued that the penalties were disproportionate and unfair on the basis that the payments were only a few days late and that no greater penalties are levied on those who delay payments for many months.

The tribunal stated: ‘That observation is entirely correct but the degree of lateness was obviously, albeit surprisingly and perhaps unjustly, something which Parliament did not consider relevant to the magnitude of the penalty.’ The employer had not put forward any ‘reasonable excuse’ for the delayed payments and the tribunal’s role was thus confined to determining whether they were in fact late and whether the penalties had been calculated in accordance with the statutory scheme.