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Replies to Queries - 3 - Over the top?

07 November 2001
Issue: 3832 / Categories:

Penalties of £100 per month have been imposed by the Inland Revenue in respect of Class 1A National Insurance contributions that were due to be paid on 19 July 2000 via the alternative payment method. The first contact made by the Revenue was in June 2001 when a liability in excess of £1,000 had been allowed to accrue. This is the first time I have come across the imposition of such a penalty. It is not disputed that the penalties can be imposed. However, it seems harsh in the extreme that no earlier warnings were given. Has anyone else experienced this?

Penalties of £100 per month have been imposed by the Inland Revenue in respect of Class 1A National Insurance contributions that were due to be paid on 19 July 2000 via the alternative payment method. The first contact made by the Revenue was in June 2001 when a liability in excess of £1,000 had been allowed to accrue. This is the first time I have come across the imposition of such a penalty. It is not disputed that the penalties can be imposed. However, it seems harsh in the extreme that no earlier warnings were given. Has anyone else experienced this?

Prior to this failure our client had an unblemished record in terms of paying tax and National Insurance contributions on time and submitting returns timeously. The 1999-00 return had been submitted by the due date. The National Insurance contributions at stake are approximately £2,700.

(Query T15,906) – K.D.M.

 

There is no doubt that penalties could be imposed – the now repealed Regulation 47K of the Social Security (Contributions) Regulations 1979 applied. The penalty was £100 per month for each multiple of ten or fewer cars for which the return was not made by the due date. I wish I was dealing with a penalty of only around £1,000 – I have several cases where the penalty is well into five figures and the Revenue is refusing to budge an inch.

Regulation 47K(6) should offer some assistance, given that the Revenue had the discretion to mitigate or remit any penalty. This power still exists in Regulation 81 of the consolidated Social Security (Contributions) Regulations 2001. What we are seeing, however, is a hard-headed approach from the Revenue where it clearly considers mitigating to mean cancellation, i.e. in its mind the penalty is all or nothing.

In its defence it is pointing to employers either having been warned before about late payments, or where they have a history of paying on time of then clearly knowing the rules, and therefore have no valid reason for paying late on this occasion.

No history of late payment clearly points to mitigation being applied, but not apparently for Class 1A. What I think we are seeing is staff trained in contributions matters looking at penalties for the first time and believing rightly or wrongly that they start at 100 per cent. If we see that being applied over all areas of National Insurance contributions (or more widely outside the field of tax!), there will really be fun and games. The training that such individuals have gone through is perhaps not as thorough as we have been led to believe.

In this type of case there is normally a 30-day window to set out why you believe penalties should not be imposed. Once the Revenue has considered, and presumably rejected, the reasons there is a further 21-day period for you to accept its decision. After this the papers are prepared for the Commissioners. That is where we have got to and we must wait to see if common sense finally prevails. – FATMAN.

 

As the company would have had to formally register to request the facility of the alternative payment method and the administratively convenient option to the annual payroll/year-end procedures, there appears little doubt that 'K.D.M.'s' client simply overlooked paying the Class 1A National Insurance contributions liability on time.

Generally, one would have expected in an ideal world that the Inland Revenue National Insurance Contributions Office would have issued forms CA6010 and CA6009 sometime in May 2000 as reminders that the 19 July payment was imminent and the penal consequences of late filing. In the absence of payment, that office should have followed up with reminding forms CA6011 stressing the outstanding return/payment – not to mention the accrual of penalties. 'K.D.M.' mentions the first communication from the Inland Revenue as June 2001. This could be important, owing to the above and further points below if an appeal (which must be made if there is any hope of penalty mitigation) is considered.

The penalty of £1,000 does indeed seem harsh compared to the amount of contributions (£2,700) at stake, especially where the return was filed on time – but sadly not the payment. No doubt the penalty is calculated based upon a company car (£100 per ten cars or part batch of ten cars, multiplied by the number of months or part months of lateness). This legislation came into force with effect from 1998-99 under Regulation 47K of the Social Security Contributions Regulations 1979. Although covered within the Employers Annual Pack (CA33 'Cars and Fuel Manual'), one wonders what percentage of employers actually read the constantly changing rules. The situation, of course, changed again for 2000-01 onwards, with the extension of Class 1A National Insurance contributions to all benefits in kind. The Revenue, in this respect, seems to admit that there was a certain amount of confusion owing to its low key approach to a one-off extension of the penalty period (from 6 July 2001 to 19 September 2001). In fact, the Revenue apologised, in this respect, for its admitted vacillation in its August 2001 publication of 'Working Together'.

Regulation 47K(5) does, however, provide for remission '… at the Board's discretion'. It appears a fair result would be for the payment of the Class 1A National Insurance contributions, interest up to the date of payment in accordance with Regulation 47F and a suitably mitigated penalty, but the Contributions Office seems unwilling to countenance this.

Having discussed similar scenarios on several occasions with the Inland Revenue Class 1A Group in Longbenton, I have a feeling of certain frustration with this 'all or nothing' penalty within that department. If the Revenue/Contributions Agency merger and 'Working Together' is not to become a laughing stock, some lobby for change is now called for.

If 'K.D.M.' feels, in any way, that the Inland Revenue National Insurance Contributions Office's administrative shortcomings outweigh his client's negligence regarding late payment, he could opt for a hearing before the General Commissioners should there be no variation on the penalty decision, upon appeal. – Jim.

Issue: 3832 / Categories:
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