Arnold (Inspector of Taxes) v G Con Ltd

JurisdictionEngland & Wales
CourtChancery Division
JudgeMR JUSTICE MANN
Judgment Date04 March 2005
Neutral Citation[2005] EWHC 2456 (Ch)
Date04 March 2005
Docket NumberCH/2004/APP/0833

[2005] EWHC 2456 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

The Royal Courts of Justice

Strand

London WC2A 2LL

Before

Mr Justice Mann

CH/2004/APP/0833

Arnold (Hmit)
Claimant
and
G-Con Limited
Defendant

MR EAMON MCNICHOLAS appeared on behalf of the Claimant

MRS HERVEY appeared in person as a director of the Defendant

MR JUSTICE MANN
1

This is an appeal by way of case stated from the decision of the general commissioners for the division of Flaxton in North Yorkshire given on or about 21 April 2004 in which they upheld an appeal of the taxpayer from a refusal by an inspector to renew a construction industry scheme certificate which had hitherto been granted to the appellant. The Inland Revenue has been represented by Mr McNicholas. Mrs Hervey, the sole director of the company, has appeared for the company. Mr McNicholas has given me every assistance in this case and went out of his way to make sure that all points that could be taken on behalf of the company were taken. Mrs Hervey advanced her case moderately and, again, gave me some considerable assistance.

2

It is the standard form of judgments delivered in this division and, indeed, in this court for the judge to go through his reasoning and only announce the decision at the end. In some cases that is not necessary and in some cases it is not appropriate and, so that Mrs Hervey is not kept in anxiety for any longer than necessary and before setting out my reasonings, I shall say that, with the greatest possible regret, I shall have to allow this appeal and quash the decision and restore the decision of the inspector. I consider that the decision of the general commissioners was flawed.

3

I shall first set out the statutory provisions which apply to this case so far as relevant for the purpose of this appeal. A construction industry certificate is granted to a subcontractor to enable that subcontractor to receive payments under its subcontract gross. Without such a certificate the payer under such subcontracts is obliged to deduct various payments and account to the Revenue for the deduction. It is a considerable advantage to the subcontractor to receive the gross payments and having such a certificate may, in some cases, be a matter of life or death for the company.

4

Because of the scope for tax avoidance or tax evasion in the industry the certificate comes at a price. The company has to satisfy various conditions in order to obtain such a certificate and those conditions are set out in section 565 of the Income and Corporation Taxes Act of 1988:

"(1) In the case of an application for the issue of a certificate under section 561 to a company (whether as a partner in a firm or otherwise), the following conditions are required to be satisfied by the company."

5

The next condition in subsection (3) is as follows:

"(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."

6

Subsection 9 provides that the qualifying period means a period of three years ending with the date of the company's application for a certificate under section 561.

7

Subsection 4 provides some relief to the company in question in respect of some of its breaches and provides that not every failure to comply with tax obligations will deprive it of a certificate:

"(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

Subsection 8 imposes an additional requirement:

"(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 (2) to (7) above and with such requests as are referred to in subsection (3) above."

I shall come back to the interaction between subsection (8) and subsection (4) in due course when considering one of the Revenue's grounds of appeal.

9

For the sake of completeness, I should deal with subsection (5). It will be noted that subsection (3) requires compliance with obligations imposed by taxation acts. Subsection (5) requires compliance with obligations imposed in respect of National Insurance contributions:

"(5) The company must, if any contribution has at any time during the qualifying period become due from the company under Part I of the Social Security Act 1975 or Part I of the Social Security (Northern Ireland) Act 1975 have paid the contribution when it became due."

I mention that provision because, on the facts of this particular case, the Revenue has said that the company has failed to comply with obligations to account for PAYE and for employer's National Insurance contributions. It is common ground that PAYE is recoverable under the Taxes Act and that National Insurance contributions are recoverable under or pursuant to the legislation referred to in subsection (5). The oddity of the section is that subsection (4) which gives some relief to the company from strict compliance with tax obligations, does not seem to apply to subsection (5), with the result that a single non-compliance with a National Insurance payment obligation, even if minor and or technical, would disentitle the company to its certificate. However, I am told that in practice the Revenue applies the "minor and technical" provision to National Insurance contributions as it does the other parts of subsection (4). In this case, the breaches in question relate to both PAYE and National Insurance but, for that reason, nothing turns on that distinction.

10

The background to the decision appealed from is as follows. G-Con Ltd, the taxpayer, has been trading in the construction industry for some three years or more. It has had a certificate for some time and in November 2002 the certificate was renewed without comment or problem. At that time the company had been in breach of its obligations to account for PAYE and National Insurance payments in a manner which will appear from a table to which I will refer later. I point out that the renewal was without comment because that is a factor relied on by Mrs Hervey in this appeal.

11

When the certificate came up for renewal at the end of 2003, however, the Revenue took a different view. By the termination dated 11 December 2003, an inspector determined that because there had been breaches of subsections (3) and (5) of section 565, and because those breaches were not technical and because there was some doubt as to whether the company would comply with its obligations in this respect in the future, the certificate should not be renewed. That is the decision appealed from.

12

There was an appeal to the general commissioners who heard the matter on 21 April 2004. The Revenue sought to appeal and their case was stated and I have before me the case stated document which is dated 10 November 2004.

13

I will outline briefly the relevant elements in the case stated. In paragraph 2, the questions are set out. Paragraph 3 records that Mrs Hervey appeared before them as she has appeared before me. Paragraph 4 lists a number of documents which were before them. Those documents include at (d) extracts from IR booklet IR40 and an extract from an earlier pronouncement from the Revenue under (x)(?), to which I will refer later. Various financial documents and a number of other documents.

14

In paragraph 5 it says:

"Although the parties had been unable to agree a written statement of facts, there was substantial agreement between them as to the relevant facts. From the [relevant] oral and documentary evidence before us we found the following facts…"

The various facts are then set out. The significance of that is that oral evidence was given as well as documentary evidence having been put before the tribunal, and I infer from that that Mrs Hervey advanced her case on the basis of some oral evidence given by her.

15

At paragraph 5(d), the case stated produces a table which summarises the various payments of PAYE and National Insurance due from the company, month by month, from month 9 in 2001/02 through to month 7 in 2003/04. That is 24 months. It indicates month by month the amounts due, the due date, when those sums were paid and how many days late they were. The table is as follows:

I shall come back to analysing that table but we will move on for the moment because at the moment I am merely setting out facts.

Duty

Amount

Due Date

Date Paid

Days Late

2003/4

PAYE/NI

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

21/07/2002

32

Month 1

£5,777.10

19/05/2003

04/06/2003

16

2002/03

PAYE/NI

Month 12

£9,559.87

19/04/2003

09/05/2003

20

Month 11

£6,820.16

19/03/2003

28/04/2003

40

Month 10

£6,808.33

19/02/2003

13/03/2003

22

Month 9

£6,099.46

19/01/2003

24/02/2003

35

Month 8

£5,765.09

19/12/2002

14/01...

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