Introduction

In The Cove Fish & Chip Restaurant Ltd v. Revenue & Customs ([2011] UKFTT 625 (TC)), the First-tier Tribunal (Tax) addressed the issue of employer liability concerning the timely submission of P35 employer's annual returns. The case revolved around The Cove Fish & Chip Restaurant Ltd ("the Appellant") challenging penalties imposed by HM Revenue & Customs (HMRC) for the late filing of its P35 return for the tax year 2009/10. The central question was whether the Appellant had a reasonable excuse for the delay, specifically focusing on the role and reliability of its appointed bookkeeper.

Summary of the Judgment

The Tribunal dismissed the Appellant's appeal against the £700 penalty imposed for the late filing of the P35 return. The Appellant contended that the delay was due to reliance on a bookkeeper who was under severe personal stress, leading to negligence in submitting the necessary documentation. Despite acknowledging the bookkeeper's circumstances, the Tribunal held that the responsibility to ensure timely filing remains with the employer. The Tribunal referenced precedents where reliance on third parties was deemed a reasonable excuse but clarified that this does not universally absolve employers from their obligations, especially in non-specialist contexts.

Analysis

Precedents Cited

The Tribunal drew upon several key cases to inform its decision:

• RW Westworth Ltd v HMRC [2010] UKFTT 477 (TC): Established that reliance on a consultant for tax matters could constitute a reasonable excuse if the company lacked expertise.
• Devon & Cornwall Surfacing Limited v HMRC [2010] UKFTT 199: Similar to the Westworth case, it recognized that reliance on a company secretary for tax compliance can be reasonable in the direct tax context.
• Rowland v HMRC [2006] STC (SCD) 536: Highlighted that reliance on specialist accountants can be a reasonable excuse under specific circumstances.
• Schola UK Ltd v HMRC [2011] UKFTT 130 (TC): Clarified that errors by agents do not amount to a reasonable excuse if proper care and due diligence were not exercised.

These precedents collectively emphasize that while reliance on third parties can sometimes constitute a reasonable excuse, it is contingent upon the nature of the task and the expertise of the party relied upon.

Legal Reasoning

The Tribunal's legal reasoning hinged on the interpretation of Section 118(2) of the Taxes Management Act 1970 (TMA), which outlines conditions under which a person may be deemed not to have failed to comply with tax obligations. The Tribunal assessed whether the Appellant's reliance on its bookkeeper met the threshold for a reasonable excuse under this provision.

Key points in the reasoning included:

• Assessment of the bookkeeper's role: The Tribunal determined that preparing and filing a P35 return does not typically require specialized tax expertise and should be manageable by any competent bookkeeper.
• Responsibility of the employer: Regardless of delegating tasks, the ultimate responsibility for timely filing rests with the employer.
• Evidence of reasonable efforts: The Tribunal found insufficient evidence that the Appellant took reasonable steps to ensure the P35 was filed on time, especially given that the Appellant was allegedly unaware of the bookkeeper's personal issues until after the deadline had passed.

Consequently, the Tribunal concluded that the reliance on the bookkeeper did not constitute a reasonable excuse to absolve the Appellant of its filing obligations.

Impact

This judgment reinforces the principle that employers retain ultimate responsibility for their tax filings, irrespective of delegation to third parties. It underscores the necessity for employers to implement adequate oversight and verification mechanisms when delegating tax-related tasks. Future cases may cite this decision to argue against claims of reasonable excuse based solely on reliance on non-specialist third parties. Additionally, it may prompt businesses to reassess their internal controls to ensure compliance with tax obligations, thereby mitigating the risk of incurring penalties due to administrative oversights.

Complex Concepts Simplified

Reasonable Excuse

A "reasonable excuse" in tax law refers to valid reasons that can justify the failure to comply with tax obligations, thereby potentially relieving the taxpayer from penalties. It is not automatically granted and depends on the specific circumstances surrounding the non-compliance.

Section 118(2) of the Taxes Management Act 1970 (TMA)

This section outlines the conditions under which a taxpayer is considered not to have failed in their tax duties. It includes provisions for granting additional time if allowed by the tax authority and recognizes reasonable excuses for non-compliance.

Tribunal Procedure (First-tier Tribunal) Rules 2009

These rules govern the procedures of the First-tier Tribunal in tax cases, including how appeals are handled, what evidence is considered, and the standards of proof required for different determinations.

Conclusion

The judgment in The Cove Fish & Chip Restaurant Ltd v. HMRC reaffirms that employers cannot evade responsibility for timely tax filings by solely relying on third parties, especially in matters that do not necessitate specialized expertise. While the courts may acknowledge exceptional circumstances under which delegation can be justified, the onus remains on the employer to ensure compliance with tax obligations. This decision serves as a crucial reminder for businesses to maintain oversight over their administrative functions and to establish robust systems that prevent inadvertent non-compliance.