Global Consultax Ltd v The Commissioners for HMRC

The form of the hearing was V (video). All parties attended remotely on the Teams platform. The documents to which we were referred are a Document Bundle of 930 pages, a Supplementary Document Bundle of 61 pages, a Statement by Mr Blazej Dziomdziora, the director of the Appellant and the Respondent’s Skeleton Argument. We also heard witness evidence from Officer Lena Chong who made the discovery.

Prior notice of the hearing had been published on the gov.uk website, with information about how representatives of the media or members of the public could apply to join the hearing remotely in order to observe the proceedings. As such, the hearing was held in public.

Mr Dziomdziora had emailed the Tribunal to say that he would not be attending the hearing and that he was content for us to proceed in his absence. In accordance with Rule 33 of the Tribunal’s Rules, we decided that it was in the interests of justice to proceed with the hearing.

References to paragraph numbers refer to paragraphs of schedule 16 Finance Act 2020 unless otherwise specified.

Sections 71 and 76 of the Coronavirus Act 2020 provided the Treasury with the power to direct HMRC’s functions in relation to coronavirus.

The Treasury made a number of Directions regarding the Coronavirus Job Retention Scheme (CJRS) under those powers. The CJRS, broadly, enabled employers to claim support payments to enable them to pay furloughed employees a proportion of their salary even though they were not working. The Coronavirus Act 2020 Functions of Her Majesty’s Revenue and Customs (Coronavirus Job Retention Scheme) Directions made on 12 November 2020 (the 5^th Direction) and 15 April 2021 (the 7^th Direction) set out the conditions for claims which are relevant in the present case.

Paragraph 3 of each of the 5^th and 7^th Directions provided that a CJRS claim could be made in respect of an employee who was a “flexibly-furloughed employee” in the claim period.

Paragraph 6.1 of each directive defined a flexibly-furloughed employee (so far as material) as being a “qualifying employee for the purposes of CJRS”.

Under paragraph 6.2 of each Direction, an employee is a qualifying employee if (in addition to other conditions) the employer made a Real Time Information (RTI) return in respect of a payment to the employee within a specified period. In the 5^th Direction, the period was after 19 March 2020 and before 31 October 2020. In the 7^th Direction the period was after 19 March 2020 and before 3 March 2021.

In summary, an employer can make a valid CJRS claim in respect of an employee only if they have made an RTI return for the relevant employee within the periods specified (between 19 March 2020 and 3 March 2021). If no such return has been made, the employee is not a “qualifying employee”, and no claim may be made.

Where an employer has received Coronavirus Support Payments (Support Payments) to which they were not entitled, paragraph 8(1) of schedule 16 provides for HMRC to recover the payments by assessing the employer to an income tax charge. Under paragraph 8(4), the income tax became chargeable, in the present case, when the Support Payment was received. Paragraph 8(5) provides that the amount of income tax due is the amount of the Support Payment to which the applicant was not entitled.

Paragraph 9(1) empowers HMRC to raise assessments to recover the tax they believe to be due under paragraph 8.

Paragraph 9(2), together with section 34 Taxes Management Act 1970 imposes a time limit of four years for making the assessment in the absence of careless or deliberate behaviour.

The Appellant made 18 CJRS claims totalling £92,835 under Finance Act 2020. The Support Payments related to 11 employees, including three directors.

HMRC opened an enquiry into the payments on 28 November 2022 and requested information. The Appellant did not provide the information and HMRC issued information notices under schedule 36 to the Finance Act 2008. On 24 February 2023, the Appellant sent an email saying that its payroll contractor had gone out of business and the relevant documents were no longer available. The Appellant did provide spreadsheets and payslips relating to the furloughed employees and, in addition, confirmation of Full Payment Submissions for the three directors.

On 5 September 2023 HMRC made income tax assessments, sent to the Appellant on 6 September, under paragraph 9 to recover Support Payments made to the Appellant to which HMRC considered it was not entitled. Under paragraph 9(2) and section 34 Taxes Management Act 1970, assessments may be made within four years of the end of the tax year to which they relate and the assessments are accordingly in time.

HMRC originally made three assessments totalling £92,835 in respect of Support Payments made to the Appellant by reference to eleven employees including three directors. The assessments were for £18,042.50 for the Accounting Period ended 31 October 2020, £36,845.00 for the tax year ending 5 April 2021 and £37,947.50 for the tax year ended 5 April 2022. HMRC also issued penalty assessments to the Appellant pursuant to schedule 41to the Finance Act 2008 as applied by paragraph 13 of schedule 16 in the amount of £46,417.50.

HMRC subsequently decided that the claims in respect of the directors were correct and are only pursuing the Support Payments made in respect of the other eight employees (the Employees). We are asked to reduce the assessments accordingly to £0, £,25,000 and £26,875, or £51,875 in total. HMRC are no longer defending the penalties.

The Appellant appeals against the (original) assessments and penalties.

The Appellant employed the eight new Employees from September 2020 in an attempt to rebuild its business and claimed Support Payments in respect of the Employees from 1 November 2020 until September 2021 which were paid to the Employees.

Between January 2020 and May 2021, the Appellant outsourced its payroll to a third-party payroll company, Cherries Financial Services Ltd (Cherries). Cherries were engaged to maintain accounting records and payroll, submit RTI returns to HMRC and prepare and submit CJRS claims based on data provided by the Appellant.

The Supplementary Bundle contained a long email chain between Mr Dziomdziora and Cherries in which Mr Dziomdziora constantly chased Cherries and asked for documentation relating to CJRS and payroll which Cherries stated they had sent. It is clear that the Appellant had sent Cherries the necessary documents and Cherries confirmed that they had made the submissions. We accept that the CJRS claims were made in good faith.

The Appellant imposed deadlines on Cherries to produce confirmation of the payroll and CJRS submissions which were not met and ultimately, on 31 May 2021, Mr Dziomdziora terminated the Appellant’s contract with Cherries. In his statement, Mr Dziomdziora stated that it was not until the end of the 2020/21 tax year that the Appellant discovered Cherries’ failings.

In fact, Cherries did not send any documents or returns at all to HMRC.

The first RTI in respect of the Employees was made on 18 June 2021, outside the qualifying periods (between 19 March 2020 and 3 March 2021) (“the qualifying period”).

The RTI was ultimately submitted by the Appellant. Officer Chong explained that HMRC’s systems showed that HMRC had never received any documents, reports or communications from Cherries and confirmed that the RTI sent on 18 June 2021 was sent by the Appellant.

As no RTI submissions were made in respect of the Employees during the qualifying period, they were not “eligible employees” for the purposes of the CJRS claims and the Appellant was not, therefore, entitled to claim Support Payments for them.

HMRC were therefore entitled to raise the assessments under paragraph 9 and they were valid, in time, assessments.

We accept that the Appellant acted in good faith and provided all the necessary information to its agent which failed to make the submissions it should have done. We also note that the Appellant actively tried to ensure that the agent had done what it was supposed to do and was constantly put off with excuses and promises that the documents would be sent.

Unfortunately, the legislation is rigid and prescriptive and there is no room for HMRC or the Tribunal to exercise discretion in relation to the assessments. This remains the case even where the failure to submit the RTI returns was not the employer’s fault, and the employer had taken reasonable care to ensure they were submitted.

Similar conclusions have been reached in other Tribunal cases including Raystra Healthcare Limited v HMRC [2023] UKFTT 496 (TC) and Luca Delivery Limited v HMRC [2023] UKFTT 00278 (TC). Luca also concerned failures by a third-party payroll contractor, in that case, called SJPR. The Tribunal said, at [60]:

“… the Tribunal has no jurisdiction to allow the appeal because:

(1)

Ms Sartor [an employee] was not included in an RTI return made by a “relevant CJRS day” namely 28 February or 19 March 2020, so there was no entitlement to CJRS.

(2)

The Tribunal only has the jurisdiction to allow an appeal where the appellant was entitled to CJRS. We cannot allow an appeal where the appellant was not so entitled, even where this was caused by the oversight of a third party, here SJPR.

(3)

No correction of the RTI filings had been made, and even had there been such a correction, it would not have changed the position, ….

(4)

Although Luca may have a claim against SJPR in relation to a failure to include Ms Sartor on the RTI returns from the date her employment began, this Tribunal does not have the jurisdiction to decide claims of that nature, and in particular cannot direct that HMRC recover the overpaid CJRS from SJPR. Moreover, our findings of fact have been made on the basis of the evidence provided for this hearing, and other facts may be relevant in the context of a civil claim against SJPR.”

The comments about the Tribunal’s jurisdiction apply equally in the present case.

For the reasons set out above we have decided that the Appellant did not submit RTI returns for the Employees in the qualifying period for the CJRS and so the Employees were not qualifying employees and the Appellant was not entitled to the Support Payments made in respect of them.

The assessments were validly made and in time.

At HMRC’s request, we reduce Assessment 1 for Accounting Period Ending (APE) 31 October 2020 (tax year 2020/21) to nil, Assessment 2 for APE 31 October 2021 (tax year 2020/21) to £25,000 and Assessment 3 for APE 31 October 2021(tax year 2021/22) to £26,875, a total of £51,875. As HMRC are no longer defending the penalties we also allow the appeal against the penalties.

Subject to the above, we dismiss the appeal.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.