No one would be surprised to hear that late filing of a tax return is likely to result in a financial penalty – but what if a return is submitted too early? In addressing that novel issue, the First-tier Tribunal (FTT) identified flaws in guidance issued to taxpayers by HM Revenue and Customs (HMRC).

The case concerned a company that had in the past been on the receiving end of several late-filing penalties. In order to avoid a recurrence, it filed a batch of PAYE returns in respect of several months well in advance. HMRC’s Basic PAYE Tools software showed the returns as submitted and marked each submission with the word ‘success’.

HMRC nevertheless subsequently raised penalties against the company in respect of three of the returns on the basis that they had been submitted too early. PAYE returns must be filed ‘during’ the month to which they pertain and the returns were therefore treated as not having been filed correctly and in time.

In upholding the company’s appeal against the penalties, the FTT found that it had a reasonable excuse for its lapse. HMRC’s correspondence with the company focused on late filing of tax returns. The company was told that it must file its returns ‘on or before’ employee paydays, but there was no mention of a cut-off before which returns could not be validly submitted.

Nowhere in HMRC’s guidance was it explained that returns must be filed within the relevant tax month and not earlier. There was no mention of a ‘start date’ for filing, as well as an ‘end date’, and the terms of the guidance would have indicated to a reasonable taxpayer that it was possible to file returns early.

HMRC’s software allowed the returns to be submitted earlier than was permitted by law and reported each of the submissions as successful. HMRC’s systems used the word ‘success’ to mean ‘received’, rather than to indicate that a return had been successfully filed. That was not, perhaps, a model of clarity.

HMRC had consistently failed to explain to the company why the returns were to be regarded as ‘late’. In the circumstances, it was not unreasonable for the company to take the view that the error lay not with it but with HMRC.