Expion: No valid determination of penalties by HMRC

24 September 2018

In Expion Silverstone Ltd v HMRC [2018] UKFTT 0460 (TC), the First-tier Tribunal (FTT) has held that no valid determination was made by an officer of the board under section 100, Taxes Management Act 1970 (TMA), in respect of penalties issued following the failure to file Employment Intermediaries returns.


An employment intermediary, within the meaning of section 716B, Income Tax (Earnings and Pensions) Act 2003, must, for each tax quarter, provide to HMRC specified information relating to payments made to agency workers for whom it has not operated PAYE. The information to be provided is specified in regulation G of the Income Tax (PAYE) Regulations 2003 (the Regulations) and must be included in a return in a form prescribed by HMRC. The return must be made no later than the end of the tax month following the end of the tax quarter.

An employment intermediary who fails to file a return for a tax quarter on time is liable to a penalty under section 98(1)(b), TMA. The relevant provisions of section 98 provide for an initial penalty not exceeding £3,000 and if the failure continues further penalties not exceeding £600 per day.

In order to impose a penalty under section 98, HMRC must determine the penalty pursuant to section 100, TMA, which provides, so far as relevant, as follows:

"100 Determination of penalties by officer of Board

(1)  ... an officer of the Board authorised by the Board for the purposes of this section may make a determination imposing a penalty under any provision of the Taxes Acts and setting it at such amount as, in his opinion, is correct or appropriate."

Expion Silverstone Ltd (the taxpayer) failed to file its return on time for the tax quarters ending 5 July 2016, 5 October 2016 and 5 January 2017.

On 19 April 2017, HMRC issued three penalty assessments to the taxpayer under section 98(1)(b), TMA, in the sums of £250, £500 and £1,000 (the assessments), for failure to file Employment Intermediaries returns (the returns) on time under regulation 84F of the Regulations.

The taxpayer appealed the assessments. 

FTT decision

The appeal was allowed.

The FTT noted that the burden of establishing whether the taxpayer was prima facie liable to the penalties was on HMRC. It was for HMRC to prove each factual matter said to justify the imposition of the penalties on the taxpayer.

The assessments were evidenced by an extract from HMRC's  computer records, consisting of a one page landscape document showing, amongst other things, that penalties were due.

Given the limited evidence which HMRC had adduced, the FTT issued directions directing HMRC to provide written submissions evidencing the name of the HMRC officer who had made the penalty determination. HMRC responded in writing as follows:

"These penalties were automatically issued by HMRC's computer systems therefore we cannot provide a named person in respect of individual cases.

The computer recorded the penalties and issued penalty notices on 19/04/2017 in accordance with the HMRC’s policy in respect of late filing of Employment Intermediary returns”.

In the view of the FTT, although HMRC has a discretion under section 100, TMA, as to whether an officer of the Board should make a determination imposing a penalty, once a decision to impose a penalty under that section has been made, the determination itself must be made by an actual authorised officer of the Board and not a computer (Donaldson v HMRC [2013] UKFTT 317).

Accordingly, given that the burden was on HMRC and it had provided limited evidence in support of its position, the FTT had little difficulty in concluding that the raising and issuing of the assessments was not in accordance with section 100 and were therefore unlawful. The Judge commented:

"It seems to me that if HMRC are suggesting that their policy is that no officer of the Board makes a determination in relation to penalties for late filing of Employment Intermediaries returns and the penalties are not only recorded and notified by a computer but also determined by a computer (i.e. there is no human intervention in the determination process) then their policy is inconsistent with the law."


This decision confirms that HMRC's apparent policy in relation to the determination of penalties under section 100, TMA, is not consistent with the law.

Although only a first-instance decision and therefore not binding, HMRC will be concerned that the FTT has concluded that penalties automatically issued by a computer were invalid as this may well have wider implications for the department in relation to other penalties which are issued in a similar way.

The reasoning of the FTT in this case is consistent with other recent FTT decisions, such as Shaw v HMRC [2018] UKFTT 0381 (TC) (our previous blog on Shaw can be viewed here).

A copy of the decision can be viewed here.

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