HMRC has secured a key ruling in its bid to claim a penalty and four months' of fines from a late PAYE submitter whose sole employee left halfway through the tax year.

Architectural firm Hok will now have to cough up the accumulated sum of £500 fines after it failed to submit on time an employer's PAYE return to the taxman. That was the decision of the Upper Tribunal after it overturned a ruling from the First-tier Tribunal (FTT) which ruled that just the first month's fine should be imposed.

The case centred around London-based Hok which had failed to issue its PAYE employer's return by the May deadline for its sole employee, who left midway through the year. Hok was also unaware that a return should be filed. Despite the time frame, HMRC did not alert Hok to the oversight until it issued a penalty notice in October, some four months after the event.

FTT judge, Geraint Jones QC originally ruled that Hok was only liable for the £100 fine, which was due in the first month following the lapse.

In the initial FTT ruling he slammed HMRC, saying: 'It has long been part of the common law of this country that organs of the State must act fairly and in good conscience with its citizens. In our judgement there is nothing fair or reasonable in setting a computer system so that it does not generate a penalty notice until four months have gone by from the date of default, thereby ensuring that a penalty of not less than £500 will be due.'

In its bid to overturn the FTT decision, HMRC said the lower tribunal 'had no jurisdiction to discharge such penalties on the grounds of fairness'.

Upper Tribunal Judge Colin Bishopp ruled that HMRC had not deliberately attempted to charge the maximum penalty, saying the decision 'was based entirely upon the judge's perception that because, as he assumed, a penalty notice could have been sent out within a month, the fact that it was sent later meant that HMRC deliberately delayed.'

He said Jones 'appears to have made no enquiry of HMRC about the justification or reasons for the practice and simply dismissed the explanation - which we acknowledge was somewhat opaque - given in the statement of case; and in neither case did the judge give HMRC an opportunity to make representations before condemning their conduct as unfair, even unconscionable. Against that background, in our judgment, the tribunal's comments to that effect were not appropriate.'