A recession-hit company whose cash-flow was hit by high levels of staff absenteeism had a reasonable excuse for not paying its PAYE bills on time, the First-Tier Tribunal has ruled. In upholding the company’s appeal against late payment penalties, the tribunal noted that the company had ‘acted sensibly’ in trying to deal with its financial difficulties and had had proper regard to its tax obligations.
The small company, which specialises in the sale of equipment for the paper converting industry, delayed payment of PAYE nine times in a single tax year and was issued with default penalties totalling £5,864.88. Her Majesty’s Revenue & Customs (HMRC) argued that there was a substantial history of late payment, that it was not a one-off situation and that cash-flow difficulties were part and parcel of the ordinary hazards of trading and could provide no excuse.
Overturning the penalties, the tribunal noted that the company had taken sensible steps to streamline its business in difficult times and its survival through the recession was ‘commendable’. The size of the workforce had been reduced, staff pay had been frozen and directors had taken cuts in salary. The company had behaved in a reasonable manner, sought financial advice from HMRC and had been ‘honest and upfront’ about its financial difficulties.
High levels of staff absenteeism had contributed to the company’s cash-flow problems and that amounted to an ‘unforeseen circumstance’ that provided a reasonable excuse for late payment of tax, the tribunal concluded.