Appealing a penalty – what may count as reasonable?

04 August 2016

You have 30 days from the date on the penalty notice in which to appeal a penalty. Depending on what penalty you are appealing there are a variety of ways in which to appeal.

PAYE and CIS both now have online penalty appeal processes.

The penalty notice

The penalty will be issued on paper and sent through the post. A generic notification (GNS) sent to your online account is not a penalty and cannot be appealed. The penalty will also be issued to the employer and not to the agent. The penalty will contain a unique ID which, assuming that you disagree that the penalty should be paid, will be needed in order to appeal the penalty.

The penalty appeal process

A penalty can be appealed online or by post and the employer or their agent has 30 days in which to lodge an appeal.

The PAYE online account, which might be yours or you might be an agent who holds a list of clients within your PAYE online account, will show details in the left hand menu, of the ability to appeal a penalty. If you select this option and a penalty has been issued, the details will be shown within that section, but you must have received the paper penalty notice in order to lodge the appeal.

When processing a penalty appeal you will be prompted via a drop down menu for a reason for the appeal.

You reason might be factual, i.e. the penalty is not due because, for example:

  • You filed on time
  • The filing expectation of HMRC was wrong
  • You no longer trade or have any employees.

Alternatively it might fall into the category of reasonable excuse which means that yes, a penalty situation has technically arisen, but you have a reasonable excuse for the penalty to be discharged.

A reasonable excuse is normally something unexpected or outside your control that stopped you meeting a tax obligation, and HMRC list a variety of reasons on GOV.UK that have been accepted as being a reasonable excuse in past appeals, such as:

  • your partner or another close relative died shortly before the tax return or payment deadline;
  • you had an unexpected stay in hospital that prevented you from dealing with your tax affairs;
  • you had a serious or life-threatening illness;
  • your computer or software failed just before or while you were preparing your online return service issues with HM Revenue and Customs (HMRC) online services;
  • a fire, flood or theft prevented you from completing your tax return;
  • postal delays that you couldn’t have predicted

Also helpfully listed are reasons that are highly unlikely (aka will not) to be accepted as a reasonable excuse:

  • you relied on someone else to send your return and they didn’t
  • your cheque bounced or payment failed because you didn’t have enough money
  • you found the HMRC online system too difficult to use
  • you didn’t get a reminder from HMRC

Payroll software also includes a variety of reason codes that should be used to avoid the risk of a late reporting penalty being issued. If you are reporting a payment to an individual after the date it was paid, you may provide a reason why you have not been able to report on time. A reason should be supplied, where applicable, to each late reported payment within the FPS.

  • A – Notional payment: Payment to Expat by third party or overseas employer
  • B – Notional payment: Employment related security
  • C – Notional payment: Other
  • D – Payment subject to Class 1 NICs but P11D/P9D for tax
  • F – No requirement to maintain a Deductions Working Sheet or Impractical to report work done on the day
  • G – Reasonable excuse
  • H – Correction to earlier submission