Gallagher's Windows, Doors & Conservatories Ltd
Jurisdiction | UK Non-devolved |
Judgment Date | 10 August 2023 |
Neutral Citation | [2023] UKFTT 706 (TC) |
Court | First-tier Tribunal (Tax Chamber) |
[2023] UKFTT 706 (TC)
Judge Natsai Manyarara, Julian Sims
First-Tier Tribunal (Tax Chamber)
Construction Industry Scheme (CIS) – Failure to include payments made to subcontractors for work undertaken within the scope of the CIS on monthly CIS returns as required FA 2004, s. 61 – Failure to make CIS deductions from payments made to subcontractors and pay those amounts over to HMRC – Determination issued pursuant to SI 2005/2045, reg. 13(2) – Whether there is a right to appeal against a refusal to make a direction under reg. 9(5) if the requirements of reg. 9(4) (Condition B)are not met.
In Gallagher’s Windows, Doors & Conservatories Ltd [2023] TC 08897, the First-tier Tribunal (FTT) dismissed the taxpayer’s appeal, finding that determinations were issued in accordance with the statutory scheme.
This was an appeal against determinations issued by HMRC on the basis that Gallagher’s Windows, Doors & Conservatories Ltd (the appellant) was undertaking construction operations and should have deducted CIS tax under FA 2004, s. 61.
The determinations were made as a result of the appellant’s failure to include payments made to subcontractors for work undertaken within the scope of the Construction Industry Scheme (CIS) on monthly CIS returns, and failure to make CIS deductions from payments made to subcontractors and pay those amounts to HMRC.
HMRC carried out checks relating the Appellant’s CIS compliance and discovered that the appellant had failed to operate the CIS properly as CIS deductions had not been made to all payments to subcontractors.
HMRC argued that there was no right to appeal against a refusal to make a direction under reg. 9(5) of the CIS regulations if the requirements of reg. 9(4) (Condition B) were not met; that the onus is on the appellant to show that it has been overcharged by the determinations issued under reg. 13(2); or that the calculation is flawed in some way, or unreasonable.
Requesting for the determinations to be withdrawn, the appellant demonstrated to HMRC that some of the subcontractors had paid tax to HMRC on the gross receipts; raising a demand on the appellant would result in unjust enrichments for HMRC; the non-compliance did not benefit the appellant; and the payment required would leave the appellant unable to recover the tax from the subcontractors, leaving them unfairly prejudiced.
Dismissing the appeal, the FTT ruled that the amounts in the determinations were made in accordance with the statutory scheme and that the Tribunal had no jurisdiction to withdraw them.
This case argued that relief should be granted for taxes paid by subcontractors under reg. 9(4), unfortunately, within the legislation, there is no right of appeal under this regulation.
Comment by Laura Burrows, Senior Tax Writer, Croner-i Ltd.
Mr M Novakovic, Accountant, Novakovic & Co. appeared for the appellant
Ms M Serdari, litigator of HM Revenue and Customs' Solicitor's Office appeared for the respondents
[1] With the consent of the parties, the form of the hearing was V (video). Prior notice of the hearing had been published on the gov.uk website, with information about how representatives of the media or members of the public could apply to join the hearing remotely in order to observe the proceedings. As such, the hearing was held in public.
[2] The documents to which we were referred were contained in the Documents Bundle, consisting of 375 pages.
[3] The Appellant appeals against determinations issued by HMRC on 6 February 2019 (to the best of HMRC's judgment), pursuant to reg. 13(2) of the Income Tax (Construction Industry Scheme) Regulations 2005 SI 2005/2045 (hereinafter referred to as “the CIS Regulations”) on the basis that the Appellant was undertaking construction operations and should have deducted CIS tax under s 61 of the Finance Act 2004 (“Section 61”). The determinations were made as a result of the Appellant's (i) failure to include payments made to subcontractors for work undertaken within the scope of the CIS on monthly CIS returns; and (ii) failure to make CIS deductions from payments made to subcontractors and pay those amounts over to HMRC. The determinations are in the sum of £51,279.00 and related to the period 2013–14 to 2016–17 (inclusive) and 6 April 2017 to 5 May 2017.
[4] The determinations arose as follows:
Period | Reason | Amount |
2013–14 | Failure to make deductions under section 61 | £9,001 |
2014–15 | Failure to make deductions under section 61 | £12,401 |
2015–16 | Failure to make deductions under section 61 | £13,471 |
2016–17 | Failure to make deductions under section 61 | £15,619 |
6 April 2017 to 5 May 2017 | Failure to make deductions under section 61 | £787 |
Total | £51,279 |
[5] HMRC had issued penalties, in the sum of £8,163.00, under Schedule 24 of the Finance Act 2007, but these were cancelled following suspension.
[6] The Appellant was incorporated on 8 October 2012 and its trade is construction operations in the form of the installation of windows, doors and conservatories. The director is Mr Kevin Gallagher. On 24 April 2013, the Appellant registered as a contractor for the purposes of the CIS.
[7] On 17 March 2017, HMRC issued a letter to the Appellant advising that they would be conducting a check of the employer and CIS records. This was followed by a further letter on 5 April 2017, in which HMRC advised that there would be a visit to the business at its premises on 16 May 2017. HMRC then carried out checks relating to the Appellant's CIS compliance. It was discovered that the Appellant had failed to operate the CIS properly as appropriate CIS deductions had not been made do all subcontractors.
[8] During the visit, Mr Gallagher confirmed that he does not fully understand all of “the ins and outs” of the CIS scheme, but that he has people around him who deal with this. He added that the Appellant has a “pool of subbies” who provide invoices, and that no materials are provided by the subcontractors. He further added that there were some electricians and plumbers who paid for some jobs, and that there would be expenses/materials involved there. He explained that the payments had not been put through the CIS scheme as it was thought that these were not within the CIS. He also gave an example of two subcontractors who had been paid for wok on conservatories.
[9] On 19 May 2017, the Appellant's agent sent an email to HMRC providing the Unique Taxpayer Reference (“UTR”) number and details for a subcontractor by the name of Andy Johnson, as requested by HMRC. HMRC wrote to the Appellant on 22 May 2017, requesting additional information and providing the Appellant with notes of the meeting.
[10] On 12 July 2017, the Appellant's agent provided the information requested. Further information was requested by HMRC on 17 July 2017. The Appellant's agent acknowledged the request and confirmed that they would endeavour to provide the information requested by 7 August 2017.
[11] On 7 August 2017, the Appellant's agent provided some of the information requested, and requested an extension of time to provide additional information. HMRC agreed to an extension until 31 August 2017.
[12] On 30 August 2017, HMRC requested clarification of the information that had already been provided by the Appellant's agent by 30 September 2017.
[13] Following further exchanges of correspondence, on 25 September 2017 HMRC wrote to the Appellant with computations of the duties that should have been deducted through the...
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