CASE STUDY (WIN): Multiple Unpaid PAYE Submissions & Penalties

For the sake of privacy we will call this client Mr Work. This kind of case has not arisen before however I see no reason as to why it would not happen again. He was late in submitting 4 years’ worth of PAYE as a result of a negligent Specialist Tax Advisor who we will refer to as Mr Advisor.

Mr Work came over from another practice on the basis that he needed help with his general Limited Company liabilities, overall tax planning and most importantly because he knew he owed monies to HMRC due to not filing his PAYE submissions. Mr Work was very embarrassed about his situation and was sure nothing could be done to relieve the situation.

First we began with interviewing Mr Work. We covered all the normal bases, like his employment history, his commencement of his company and its development, to what had lead him to submit said PAYE submissions late and also what was available for us to view as his acting agents, whilst also getting to know Mr Work himself. It became clear that he had thoroughly trusted his previous Tax Advisor/Accountant to complete all Mr Work’s liabilities that come hand in hand with owning a business, yet as we delved deeper into this case, more and more problems cropped up from the past, that had been resolved but formed a pattern.

The Background

So with some £2,700 owing to HMRC that spanned over 4 years and included 8 different penalties, it was clear that before we could proceed with any ideas, we needed a stronger and more informative background as to how these penalties arose. An interview took place with Mr Work and he described his relationship with Mr Advisor. Mr Advisor had helped Mr Work with previous problems surrounding debt when he used to be self-employed. They had stayed in contact and their relationship had shifted from solely professional to friendly acquaintances.

When Mr Work decided to become Self-Employed again a number of years later, he sought advice from (oh the irony) Mr Advice. This lead to Mr Work incorporating a Limited Company while Mr Advisor was contracted in as the Company’s specialist tax advisor and accountant. It was agreed by both parties that Mr Advisor would take care of every liability that having a Limited Company would entail. This did not happen. VAT Returns were submitted late which were around the same time as the first PAYE Penalty came to Mr Works’ attention. Mr Advisor constantly reassured Mr Work about his performance and shifted the blame onto HMRC themselves when Mr Work caught wind of the penalties. To Mr Work, this was reasonable, as Mr Advisor had helped him in a difficult time before and knew exactly what he was doing. This resulted in a VAT Compliance Check, which subsequently resulted in Mr Work taking over the VAT Returns to complete himself.

Did we have grounds for an Appeal?

HMRC have an immense amount of helpful information and guidance on their website on all aspects of Appeals. Normally, with regards to an appeal, you have 30 days from the giving of a penalty notice to appeal said penalties. Unless (this is a broad terminology) you have a reasonable excuse for not doing so. Did we have an excuse? Why yes we did, we had only just become Mr Work’s Accountants and would launch our letter of appeal without delay.

First we did our research on Tribunal cases. Ones that had won and others that hadn’t. The most informative was that of Rowland v Revenue & Customs [2006] UKSPC00548 (14 June 2006). The comparison in the language used was vastly different and gave us a linguistic plan for our letter. Other information that was very helpful was the HMRC manual ‘Penalties for inaccuracies: other penalty issues: agency – introduction’ and the manuals that stemmed off, for example ‘Dishonest tax agents: overview’. These manuals laid the fundamental paving stones for the basis of our Appeal.

It took a good fortnight to conclude the letter whilst obtaining more information from Mr Work. However, we still could not put our finger onto why Mr Work had trusted Mr Advisor, even after he had failed so miserably with regards to the VAT Returns. It came to light that Mr Work had suffered various in this time scale from severe depression and had even been admitted into a clinic for said illness and that Mr Advisor supported him throughout this time. Finally, a feasible answer to our question, yet it would still all be a very hard sell to HM Revenue & Customs and we advised our client accordingly.

A Waiting Game

Our appeal had been lodged and we had to sit and wait for a response as HMRC give a deadline of 30 days. Mr Work was extremely pleased with our letter and the depth of information we had included.

The Results

After a white knuckled wait of 21 days, we received a response from a HMRC Officer. We had won! Not all of the penalties had been eradicated, however 53% had. To say that we were jumping for joy would be an understatement. We informed Mr Work and he was ecstatic.

After explaining to Mr Work that we could take the Appeal further by way of a Tribunal, he declined. He was correct in expressing that, with thanks to us, he had saved over half the money due and was extremely happy to just simply pay what was left to HMRC as that seemed a reasonable amount considering the circumstances.

Moral of the Story

Although there were great grounds to the Appeal for Mr Work, there is a legal requirement for any person employing an Accountant or Tax Advisor to make sure all work is completed properly and on time. Had Mr Work not just simply taken Mr Advisor’s word on completion of work, the penalties would not have been there to be eradicated.

Trust is a fragile thing, we at Cooper Bradshaw know this and treat it to an impeccable standard. Communication and deadlines are our forte and we like to make sure all clients are well informed and are educated with regards to their HMRC liabilities. I think it is safe to say, Mr Work is now fully informed and will be completely above board in the future with the help of Cooper Bradshaw.

About the authors

Ben Laws is Director of Cooper Bradshaw Ltd, in Ramsgate, Kent. His firm specialises in Tax Investigations, Appeals, Enquiries, Disclosures and associated compliance matters. Although his practice mainly covers the Margate, Broadstairs, Ramsgate & Thanet areas of Kent, he also advises clients throughout the UK, as well as overseas.

Naomi Searle, also of Cooper Bradshaw, is an Appeals Case Handler whose research and case management contributions towards this particular appeal were instrumental in achieving such a measure of success.

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