The facts in the case were that there was a genuine belief that they did not need to submit a 2009/10 P35 and only received notice in September that there was a failure to submit when a fine for £400 hit their desk. Because of the timing the fine actually went up to £500 before the P35 could actually be submitted.
Judge Geraint Jones QC stated "In our judgement the appellant is entitled to rely upon the common law duty of a public body to act fairly not just in its decision making process but also in adminstering its statutory powers. We are in no doubt that such a body does not act fairly where it deliberately desists from sending a penalty notice, for four months or more, knowing that the effect will be to impose a minimum penalty of £500 upon somebody whose sin may be no more than oversight or forgetfullness"
Other comments in this case from the judge were that it would be a simple matter for HMRC to program its computers to send out P35 penalty notices in May rather than September to avoid fines piling up.
This is a common bone of contention with HMRC. Their systems clearly show who hasn't filed a P35 by 20 May. Delays in issuing fines which run at £100 per 50 employees per month stack up very quickly and receiving notification in September / October is unacceptable particularly when there are genuine reasons for the omission or delay.
Be warned though HMRC are appealing the decision!