Strict Application of Schedule 56 Penalties for Late PAYE and NICs: Analysis of St John Patrick Publishers Ltd v Revenue & Customs

Introduction

The case of St John Patrick Publishers Ltd v. Revenue & Customs ([2012] UKFTT 20 (TC)) was adjudicated by the First-tier Tribunal (Tax) on January 5, 2012. The appellant, St John Patrick Publishers Ltd, challenged a penalty of £8,290.76 imposed under Schedule 56 of the Finance Act 2009 (FA 2009). This penalty was levied due to the company's late payments of monthly PAYE (Pay As You Earn) and National Insurance contributions (NICs) across 11 months concluding on April 5, 2011. The primary legal issue centered on whether the appellant had a reasonable excuse or special circumstances justifying the late payments, thereby nullifying or reducing the imposed penalties.

Summary of the Judgment

The Tribunal dismissed the appeal, upholding the penalties assessed under Schedule 56 of the FA 2009. The appellant failed to demonstrate a reasonable excuse or special circumstances that would exempt them from the penalties for late PAYE and NICs payments. Despite attempts to defer payments by contacting HMRC post-deadline, the Tribunal found that such actions did not constitute a valid excuse under the stipulated regulations. The decision reiterated the strict application of Schedule 56 penalties, emphasizing the importance of timely tax payments by employers.

Analysis

Precedents Cited

The Tribunal referenced Dina Foods Ltd v Revenue & Customs [2011] UKFTT 709 (TC) as a significant precedent. In Dina Foods, the Tribunal clarified the non-discretionary nature of Schedule 56 penalties, stating that penalties are directly correlated with the number of defaults within a tax year. Key points from Dina Foods included:

The penalties are strictly based on the number of late payments, with no inherent discretion for HMRC except under special circumstances.
HMRC is not obligated to issue individual warnings to employers, though general information dissemination is expected.
Lack of awareness of the penalty regime does not qualify as a special circumstance.
Failures by HMRC to warn taxpayers do not constitute reasonable excuses or special circumstances.

These precedents reinforced the Tribunal's stance in the present case, underscoring the importance of adherence to tax payment schedules.

Legal Reasoning

The Tribunal's legal reasoning was grounded in the explicit terms of Schedule 56 of the FA 2009. Critical points included:

No Discretionary Relief: Except for scenarios involving special circumstances as defined in paragraph 9 of Schedule 56, penalties are applied strictly based on the number of late payments.
Timing of Deferral Requests: The appellant's attempts to defer payments were made after the due dates, rendering paragraph 10 of Schedule 56 inapplicable.
Reliability of Evidence: The Tribunal favored HMRC's contemporaneous computer records over the appellant's recollections, finding the former more credible regarding the timing of communications.
Special Circumstances: The Tribunal determined that merely attempting to engage with HMRC post-deadline does not amount to 'special circumstances.' Additionally, the appellant failed to present any compelling evidence that the overall circumstances should warrant a penalty reduction.

Ultimately, the Tribunal concluded that the appellant did not satisfy the criteria for either a reasonable excuse or special circumstances as outlined in Schedule 56.

Impact

This judgment has significant implications for employers and businesses regarding the timely payment of PAYE and NICs:

Reinforcement of Penalty Framework: The decision emphasizes the non-negotiable nature of Schedule 56 penalties, highlighting that late payments will attract penalties regardless of subsequent attempts to defer.
Importance of Proactive Communication: Employers must ensure that any requests for deferrals or extensions are made prior to payment deadlines to qualify for potential penalty exemptions under paragraph 10.
Limited Scope for Appeals: The stringent criteria for reasonable excuses or special circumstances narrow the avenues for penalty reductions, urging taxpayers to maintain strict compliance.
Enhanced Record-Keeping: The reliance on contemporaneous records underscores the need for meticulous documentation of all communications and agreements with HMRC.

Future cases involving similar issues will likely reference this judgment, reinforcing the Tribunal's commitment to upholding the integrity of the tax payment system.

Complex Concepts Simplified

Understanding the nuances of Schedule 56 is essential for employers managing PAYE and NICs:

Schedule 56: A section of the Finance Act 2009 that outlines penalties for late payment of various taxes, including PAYE and NICs.
P (Person): Refers to any individual or entity responsible for paying the specified tax.
Penalty Date: The day after the due date for tax payment, marking the commencement of penalty applicability.
Reasonable Excuse: Circumstances that exempt a taxpayer from penalties, provided they meet specific criteria such as being beyond the taxpayer’s control.
Special Circumstances: Unique situations that may warrant a reduction or waiver of penalties, at HMRC's discretion.
Defaults: Instances where a taxpayer fails to make payments on time. The number of defaults directly influences the penalty percentage.
Paragraph 10: Allows for the avoidance of penalties if a deferral agreement with HMRC is made before the penalty date and payments are made within the agreed timeframe.

In essence, Schedule 56 strictly penalizes late payments based on their frequency within a tax year, with minimal flexibility for exceptions unless stringent conditions are met.

Conclusion

The decision in St John Patrick Publishers Ltd v. Revenue & Customs serves as a stringent reminder of the rigid framework governing PAYE and NICs payments under Schedule 56 of the Finance Act 2009. The Tribunal's affirmation of the penalties underscores the necessity for employers to adhere strictly to payment deadlines. Attempts to mitigate penalties through post-deadline communications with HMRC are insufficient unless made proactively and within the prescribed regulatory framework. This judgment reinforces the imperative for meticulous financial compliance and proactive engagement with tax authorities to avoid punitive sanctions.