Follow up

RTI early filing penalty appeal

[Letter]

Can you be penalised for filing RTI returns early?

2022 case

In Quayviews Ltd v HMRC , Quayviews (Q) had been issued with late filing penalties previously so on 4 September 2020 it decided to batch file its full payment submissions (FPS) for the tax months ending 5 November 2020 (month 7), 5 December 2020 (month 8), 5 January 2021 (month 9) and 5 April 2021 (month 12). Q used HMRC’s Basic PAYE Tools software which allowed the early filing and the software confirmed that the forms had been submitted successfully.

Penalty! However, HMRC later issued a late filing penalty for months 7, 8 and 9 (but not for month 12 which it couldn’t explain). Although HMRC acknowledged that the returns had been received, it issued late filing penalties because no returns were filed within the relevant tax months. Q, understandably, lodged an appeal to the First-tier Tribunal (FTT).

Decision. The FTT overruled HMRC’s decision on the basis that Q had a reasonable excuse because: (1) HMRC’s guidance stated that the FPS could be submitted “on or before” payday and did not refer to the fact that filing early and not within the tax month could constitute late filing; (2) HMRC’s Basic PAYE Tools allows files to submitted early without an indication that early could mean too early; and (3) HMRC’s software gave a success message which didn’t make clear that this only means that the submission has been received.

Pro advice. If you want to file the FPS early, to avoid HMRC potentially issuing a late filing penalty , make sure you file the FPS in the same tax month as the payday.

Received a similar penalty?

There’s been much debate following the Q case as to whether the FTT was wrong to allow the appeal on the basis that the employer had a reasonable excuse but rather that it should have been because HMRC should not have raised the penalties in the first place.

RTI regulations. The obligation to make an RTI return “on or before” the employee is paid is contained in regulation 67B Income Tax (Pay As You Earn) Regulations 2012 (ITEPA) . However, if no salaries are paid in a month, the employer does not need to send an RTI return in that month because none is required by law (regulation 67F) . Regulation 67F makes it clear that the non-payment notification is optional, by stating, “A Real Time Information employer may send to HMRC a notification if: a) for a tax period, the employer was not required to make any returns in accordance with regulation 67B or 67D because no relevant payments were made during the tax period…” So under the ITEPA regulations , if there’s no payment in a month there’s no obligation to file.

HMRC’s RTI computer. The problem is that HMRC’s RTI computer has been programmed to issue a penalty for a particular tax month if it has not received an FPS and has not been told that no payments would be made in the month. So HMRC’s systems do not seem to be interpreting the regulations correctly.

Pro advice. If you’ve received similar “late” filing penalties, write to HMRC quoting RTI regulation 67F .

RTI early filing penalty appeal letter