The taxman’s tendency to hang on for a few months while fines accumulate before sending out penalty notices for late PAYE returns has been blasted in a tribunal hearing.

In the case of HMD Response International v HMRC the tribunal judge, Geraint Jones QC, said in the judgmentWe are in no doubt that such a body does not act fairly when it deliberately desists from sending a penalty notice, for four months or more, knowing that the effect will be to impose a minimum penalty of £500 upon somebody whose sin may amount to no more than oversight or forgetfulness.”

Response International, a small charity that works for the victims of conflict, was fined £500 by HMRC, which accountant John Williams thought was unfair. So he took on the case and won it for free says the Guardian. And in the process he may well have forced HMRC to change its stance on ‘reasonableness’ and take a more lenient approach to all late PAYE fines.

HMRC has so far said that to show a ‘reasonable excuse’ for failing to submit a return on time the taxpayer had to prove that some exceptional event had prevented it. But the tribunal said “As a matter of law, that is not the correct test and is totally misleading” and went on to say that the ordinary meaning of the word ‘reasonable’ should be applied.

To make matters worse for the charity, while the matter was under review they received a letter from HMRC, says accountingweb, that claimed the charity was ‘ignoring’ HMRC’s efforts to resolve it. This said the tribunal judge “…smacks more of the conduct of a disreputable debt collector than of responsible conduct by an organ of the state”.

As an organ of the state said the tribunal, HMRC should not deliberately delay sending out penalty notices. “HMRC is a manifestation of the state. It is no function of the state to use the penalty system as a cash generating scheme.” Said the judgment.

The repercussions for HMRC could be that some 50,000 to 100,000 firms may now be able to qualify for refunds for millions paid in fines says the Guardian.

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