Arnold (Inspector of Taxes) v G Con Ltd
| Jurisdiction | England & Wales |
| Judge | SIR PETER GIBSON,LORD JUSTICE HUGHES,LORD JUSTICE JONATHAN PARKER |
| Judgment Date | 12 May 2006 |
| Neutral Citation | [2006] EWCA Civ 829 |
| Docket Number | C3/2005/2143 & C3/2005/2143(A) |
| Court | Court of Appeal (Civil Division) |
| Date | 12 May 2006 |
[2006] EWCA Civ 829
Lord Justice Jonathan Parker
Lord Justice Hughes
Sir Peter Gibson
C3/2005/2143 & C3/2005/2143(A)
MR D SOUTHERN & MR T BROWN (instructed by Messrs Wedlake Bell, LONDON, WC1R 4LR) appeared on behalf of the Appellant
MR T BRENNAN QC & MR E MCNICHOLAS (instructed by HM Revenue & Customs Solicitor's Office) appeared on behalf of the Respondent
This is an appeal by G-Con Limited ("G-Con") from the order of Mann J on 4 March 2005. Thereby, the judge allowed the appeal of the Inspector of Taxes from the decision of the General Commissioners for the Flaxton Division in North Yorkshire, who had allowed G-Con's appeal against the Inspector's refusal of G-Con's application for the renewal of a construction industry scheme ("CIS") certificate. Chadwick LJ gave permission to G-Con to bring this second appeal because he thought there was some force in its submission that the approach of Laddie J in Cormack (HMIT) v CBL Cable Contractors Limited [2005] EWHC 1294 Ch ("CBL") on 23 June 2005 was difficult to reconcile with that of Mann J, and because of the need for consistency of approach.
The CIS certificate scheme was introduced by section 29 of the Finance Act 1971 to prevent the loss of income tax payable by building workers claiming to be self-employed, commonly called the lump. If sub-contractors performing operations for, or supplying labour to, a contractor paid building workers gross on the basis of such a claim, but the workers were unknown to the Revenue, they could fail to account for tax on their earnings. To meet this mischief, the contractor was required to deduct tax from what it paid sub-contractors unless they could produce a CIS certificate issued by the Revenue.
The details of the CIS certificate scheme are now set out in sections 559 to 567 of the Income and Corporation Taxes Act 1988. The general rule requiring the contractor, on making a payment to the sub-contractor, to deduct tax is in section 559(4) . But by section 561, if the sub-contractor holds a current valid CIS certificate the contractor can pay him gross. Section 561(2) provides:
"(2) If the Board are satisfied, on the application of … a company that –
…
(c) … the company satisfies the conditions set out in section 565 … the Board shall issue to that … company a certificate excepting that … company … from section 559."
The conditions in section 565 relevant to the present case are the following:
"(3) The company must, subject to subsection (4) below, have complied with all obligations imposed on it by or under the Tax Acts or the Management Act in respect of periods ending within the qualifying period and with all requests to supply to an Inspector accounts of, or other information about, the business of the company in respect of periods so ending.
(4) A company which has failed to comply with such an obligation or request as is referred to in subsection (3) above shall nevertheless be treated as satisfying this condition as regards that obligation or request if the Board are of the opinion that the failure is minor and technical and does not give reason to doubt that the conditions mentioned in subsection (8) below will be satisfied.
(8) There must be reason to expect that the company will, in respect of periods ending after the end of the qualifying period, comply with all such obligations as are referred to in subsections (3) to (7) above and with such requests as are referred to in subsection (3) above.
(8A) Subject to subsection (4) above, a company shall not be taken for the purposes of this section to have complied with any such obligation or request as is referred to in subsections (3) to (7) above if there has been a contravention of a requirement as to the time at which, or the period within which, the obligation or request was to be complied with."
The reference to the Board in sections 561(2) and 565(4) are references to the Board of Inland Revenue, but the Board has delegated its functions under those provisions to Inspectors of Taxes. The Tax Acts are widely defined and include the 1988 Act. The Management Act is the Taxes Management Act 1970. The term "qualifying period" in section 565 means the period of three years ending with the date of the company's application for a certificate under section 561 (see section 565(9)) .
Section 561(9) allows a person aggrieved by the refusal of an application for, or the cancellation of, a certificate to appeal to the General or Special Commissioners, and on such an appeal the Commissioners can review any relevant decision taken by the Revenue under section 561.
By Regulation 40(1) of the Income Tax (Employment) Regulations 1993 ( SI 1993/744) PAYE tax is due 14 days after the end of each income tax month and by Regulation 2(1) , an income tax month ends on the fifth of each month. Similarly, National Insurance Contributions ("NIC") are due 14 days after the end of each tax month ending on the fifth of the month (see paragraphs (1) and 10(1) of Schedule 4 to the Social Security (Contributions) Regulations 2001 (SI 2001/1004)) . Accordingly, the sub-contractor is under a statutory obligation to pay PAYE tax and NIC on or before the 19 th of the month and any delay in making such payment in respect of a period ending within the qualifying period constitutes a failure to comply with obligations imposed on it under the Tax Acts or the Taxes Management Act.
The General Commissioners found, or referred to documents recording, the following facts:
(a) G-Con had applied for, and on 28 March 2002 had been granted, a CIS certificate. The certificate had been renewed on 21 November 2002 and expired on 31 March 2004. G-Con, by an application dated 28 November 2003, applied for a further renewal of the certificate.
(b) By a letter dated 11 December 2003 the Revenue informed G-Con that its application was refused. It enclosed a booklet, IR40, in which the conditions for obtaining a certificate were explained, and it drew particular attention to the paragraphs headed "Compliance Test" and to the sections on "minor and technical failures". It said that the payments of PAYE tax and NIC had been made more than 14 days late on 15 occasions out of the 23 payments made, and that it did not consider those failures to be minor and technical. G-Con had therefore failed the Compliance Test.
(c) By a letter dated 2 January 2004 G-Con notified the Revenue of its appeal.
(d) The qualifiying period was the period of three years ended 10 December 2003. The PAYE tax and NIC payments made in that period were set out in a table as follows:
Duty
Amount
Due Date
Date Paid
Days Late
2003/4 PAYE/NIC
Month 7
£4,329.93
19/11/2003
02/12/2003
13
Month 6
£5,207.03
19/10/2003
12/11/2003
24
Month 5
£5,985.12
19/09/2003
16/10/2003
27
Month 4
£5,206.54
19/08/2003
17/09/2003
29
Month 3
£6,395.63
19/07/2003
20/08/2003
32
Month 2
£5,695.54
19/06/2003
21/07/2003
32
Month 1
£5,777.10
19/05/2003
04/06/2003
16
2002/03 PAYE/NIC
Month 12
£9,599.87
19/04/2003
09/05/2003
20
Month 11
£6,820.16
19/03/2003
28/04/2003
40
Month 10
£6,608.33
19/02/2003
13/03/2003
22
Month 9
£6,099.46
19/01/2003
23/02/2003
35
Month 8
£5,756.09
19/12/2002
14/01/2003
25
Month 7
£5,704.21
19/11/2002
26/11/2002
07
Month 6
£6,328.67
19/10/2002
08/11/2002
20
Month 5
£5,326.74
19/09/2002
28/10/2002
39
Month 4
£5,423.62
19/08/2002
16/09/2002
28
Month 3
£11,121.14
19/07/2002
26/07/2002
07
Month 2
£5,846.51
19/06/2002
02/07/2002
13
Month 1
£5,846.41
19/05/2002
27/05/2002
08
2001/02 PAYE/NIC
Month 12
£8,386.24
19/04/2002
08/05/2002
19
Month 11
£4,837.07
19/03/2002
27/03/2002
08
Month 10
£4,712.56
19/02/2002
02/04/2002
14
Month 9
£4,523.25
19/01/2002
25/01/2002
06
That table is inaccurate in one respect. The PAYE tax/NIC payment for month 10 in 2001/02 was 41 days late, not 14.
(e) G-Con made a loss of £34,595 for the year ended 31 March 2003.
(f) G-Con's monthly accounts from April to November 2003 showed that its profitability had improved over that period from a loss of £8,754.69 to a profit of £7,676.05.
At the hearing before the General Commissioners, G-Con was represented by its sole director, Mrs Hervey. Among the contentions advanced by her and recorded by the General Commissioners in paragraph 6 of the Case Stated was this:
"(g) that having regard to its record of compliance in all other tax matters during the qualifying period the late payments of PAYE/NIC should be regarded as minor and technical and, given the Company's improving financial position, there was no reason to doubt that the conditions mentioned in subsection (8) of section 565 would be satisfied".
The General Commissioners were referred to the case of Shaw (H M Inspector of Taxes) v Vicky Construction Limited [2002] STC 1544. They said in paragraph 9:
"The Commissioners having heard the evidence brought before them and considered the arguments advanced by the parties reached the following conclusions:
(a) Vicky Construction Limited had received a letter from the Inland Revenue in...
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