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HMRC internal manual

PAYE Manual

Appeals and reviews: end of year penalty appeals: consideration by a higher officer

Apart from appeals on the amount of the penalty (PAYE7520), the employer will need to show that the conditions of the TMA 70/S118 (2) apply to enable the penalty to be discharged. The employer, therefore, has to show that there was a reasonable excuse for the failure to submit the employer’s annual return on time and that this was remedied as soon as could reasonably be expected after the excuse had run out.

The question of the reasonable excuse is to be judged as at the statutory filing date of 19 May (This content has been withheld because of exemptions in the Freedom of Information Act 2000) PAYE51020(This content has been withheld because of exemptions in the Freedom of Information Act 2000) .

The term is not defined by statute, but broadly speaking a ‘reasonable excuse’ is

  • An unusual event that could not be reasonably foreseen or is beyond the person’s control which prevented a return being sent back by the deadline or tax and NIC being paid by the due date
  • Not prescriptive and must be considered based on the facts of that case

You should bear in mind that an employer who has operated PAYE correctly during the year of assessment and kept forms P11 up-to-date should have little difficulty normally in completing the P35 end of year summary and accompanying forms P14 within the six weeks (44 days) of the end of the deduction year. That is normally by 19 May each year.

Successful claims for a reasonable excuse should therefore not be frequent. Nevertheless there will be some employers who have made reasonable endeavours to complete the employer annual return on time but fail to do so as a result of some unforeseen misfortune. If you are satisfied that is the case then you should agree under TMA70/S54 that the penalty be reduced to nil and amend the determination accordingly.

You may be able to make your decision from information given in the letter appealing against the determination but often it will be necessary to obtain the relevant facts before coming to a decision. It will usually be quicker and easier to try to obtain further information by phone or interview.

If, after careful consideration of the excuse, you consider that the appeal should not be allowed because there was no reasonable excuse, you should explain why to the employer and seek the withdrawal of the appeal. You should take care to explain to the employer that he still has the right of appeal to the tribunal against the penalty determination, if unable to agree with you.

If the appeal is withdrawn, the charge will automatically be restored after you record the end result of the appeal (PAYE7570). Otherwise, the appeal should be listed for hearing by the tribunal without delay (see ARTG2100).

If you have any doubts about whether or not an employer’s explanation amounts to a reasonable excuse you should consult Central Policy: Tax Administration Advice, Queens Dock, Liverpool (Employer Compliance).