Successful challenges to specified employment intermediary compliance penalties

Mon 19 Nov 2018

Two recent First tier Tribunal (FTT) cases, Leverton Search Ltd and Tarrant Howl Ltd, are examples where the taxpayer has succeeded in appealing penalties for not filing returns required from ‘specified employment intermediaries’. One illustrates a commencement grace period operated by HMRC, while the second illustrates the difficulty of interpreting HMRC’s guidance.

For a further discussion of employment tax compliance obligations or the procedure for appealing employment penalties and assessments, please get in touch with a member of the Mazars employment taxes or tax investigation team.

Since the quarter commencing 6 April 2015 specified employment intermediaries have been required to file quarterly returns of information where they meet certain conditions (for example see HMRC’s guidance note).

In the Leverton case, the Judge noted that company did not meet all of the requirements to be considered a “specified employment intermediary”, which the company’s advisor had not previously realised. Also HMRC admitted that they had allowed a 12 month honeymoon period to allow taxpayers to familiarise themselves with the new regime, so that the first penalty applied in this instance was for the quarter commencing 6 April 2016.

The Tarrant Howl case is an example where the taxpayer succeeded in having penalties for not submitting nil returns, vacated. It is of interest as the FTT found interpreting HMRC website guidance far from easy (in contrast to HMRC’s view). An extract from the case is included below.

“80 As someone who has just examined the legislation and the ESM as well as the information on the Gov.uk website I have found the only passage that purports to explain the circumstances in which a nil report is required, numbered paragraph (6) in §64, more than a little impenetrable. It has two negatives “you must … unless” and “don’t” and alternatives, (a) and (b), where I am still not clear if the final words about a year relate to both alternatives or only (b).

I am used to construing complex law and I am reasonably, but not wholly, confident that the effect of regulation 84F(5) is that nil returns were required for Q2 and Q3. But I am not the kind of person the web guidance is aimed at: the appellant (and their payroll agency) is. Mr Howl did not read it, but had he done so I do not think he would clearly understand that he had to send nil returns for Q2 and Q3. It would be perfectly reasonable for any SEI looking at the words:

“Where you have not supplied workers in a specific quarter, you must file a ‘nil report’ by the deadline date.”

to think that it only applied where they had no workers to supply, whether PAYE was operated on their pay, as is the norm for agency workers by virtue of s 44 ITEPA and regulation 10 of the PAYE Regulations, or not.

And I think that what I have said above shows that it is not immediately obvious how someone with no tax knowledge would even find the webpages that HMRC refer to, whether or not they are clear.“