Further update on PAYE penalties and online appeals

penalties - alison ward

In my previous article, in the March edition of Employer Focus, I outlined the process for making appeals against penalties received for the late filing of PAYE returns, using the new online Penalty and Appeals Service (PAS). In the last three months there has been some significant developments in this area and a further update would perhaps prove useful for members.

Appealing against penalties issued when filing delay three days or less – revised guidance

At the time of writing the previous article, HMRC had recently issued an announcement allowing a temporary relaxation to the filing rules where the delay occurred for three days or less. This relaxation has now been automatically built into the RTI system and so there should not be any late filing penalties issued where the relaxation applies from 6 March 2015. However, employers may still have received a penalty notice for a late filing failure before this date where the relaxation could be claimed and an appeal would still need to be lodged. The easiest way to do this remains the use of the online PAS. Since the publication of the last Employer Focus, HMRC has revised its guidance on how to lodge an appeal in these circumstances. HMRC had previously stated that the employer should select ‘other’ as the reason and add ‘return filed within three days’ in the narrative box. However, under new guidance employers should now select ‘Reason code A’ and use the same narrative as before. Reason code A should also be used if appealing in writing.

Feedback from HMRC on the use of the online PAS

HMRC has noted that employers or agents who appeal penalties straight away do so mainly using the online system. However, as time passes there is a decrease in the online activity and more appeals received in writing. HMRC is keen to push the online system as the most effective way to appeal and I would be interested to hear from those who are not using the online system as to the reasons why.

HMRC research has uncovered a number of misunderstandings in completing the appeals process and it is looking to issue further guidance, expected to be in the form of an article in a future HMRC Employer Bulletin on the ‘Top 10 Tips’ for using the appeals system. It has, in previous HMRC Employer Bulletins, covered tips on filing and avoiding penalties.

A common theme amongst users of the online system appears to be the tendency for employers and agents to appeal using the ‘other’ reason and rely heavily on the narrative box. HMRC wants to move employers and agents away from this and encourage them to be more specific with the reason code.

The greatest reason provided by far is ‘I did file on time’. Yet, when HMRC looked into the appeals lodged citing this as the reason, none of them had actually filed on time, despite their belief in doing so. HMRC accepts that a number of these cases could have fallen into the three day easement rule and had just applied the incorrect reason through not being aware of the guidance on this.

HMRC have been making contact with employers appealing on this basis to explain why there was a failure and how a misunderstanding has arisen. HMRC believes that this contact is improving compliance behaviour next time around.

'On or before’

It has been highlighted through the appeals process and contacting employers and agents that there are common misunderstandings and errors surrounding the requirements of ‘on or before’. It is essential that HMRC continues to provide education and guidance on this to ensure that everyone can get it right by the time the three day relaxation ceases at the end of the 2015/16 tax year. The Office of Tax Simplification (OTS) recommended a review of ‘on or before’ and I believe that HMRC should be starting this review very shortly.

HMRC’s changing approach to issuing PAYE penalties

The most recent development to occur to PAYE penalties occurred on 17 June 2015 when HMRC announced that, from now until the end of 2015/16, PAYE late filing penalties would be issued on a more proportionate approach and HMRC would be concentrating on the more serious defaults on a risk-assessed basis.

This is in line with the approach being taken with penalties issued for late payment of PAYE at present and should be welcome news to employers.

However, employers who are ‘let-off’ from a penalty under this risk-based approach still need to remember that their obligations to report and pay on time remain exactly the same and they should take note of any GNS messages they receive advising them of a default. HMRC will not be contacting such employers in this situation to explain why their GNS default has not resulted in a penalty, so it will be down to the agent advising them to ensure that they appreciate they have been granted a period of grace this time to allow them the opportunity to correct behaviour. Next time, they may not be so lucky.

Hopefully, this approach to issuing PAYE penalties will be put on a statutory footing for next year once HMRC has issued its response on the outcome of the consultation on the penalties system as a whole.

Developments due in next few months

To close, there are a couple of points to note for future use of the online PAS:

  • As reported in Agent Update 48, contractors and their authorised representatives will be able to use the online PAS to make electronic appeals against CIS late filing penalties from the end of June 2015.
  • Any penalties issued for the late payment of PAYE relating to the 2014/15 tax year are not appealable using the online PAS. However, when the late payment penalties for quarter 1 of 2015/16 are issued later this year, in September, they will be appealable using the online PAS.

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By Alison Ward

Alison is one of the Association’s Technical Officers and represents the Association on the RTI Task Force.