Industrial Contracting Services Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 04 May 2011 |
| Neutral Citation | [2011] UKFTT 290 (TC) |
| Date | 04 May 2011 |
| Court | First Tier Tribunal (Tax Chamber) |
[2011] UKFTT 290 (TC)
Ms J Blewitt (Chairman)
Mr R Stanley for the Appellant
Mr P Oborne, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents
Income tax - subcontractors - construction industry scheme (CIS) - HMRC cancelling taxpayer registration of gross payment status - late payment of Class 1A NIC - taxpayer failing to meet compliance test - First-tier Tribunal deciding taxpayer's onerous workload and cash flow problems was not reasonable excuse for late payment - tribunal having no jurisdiction to consider issue of proportionality - no evidence before tribunal that cancellation of gross payment status would lead to loss of contracts - no evidence of exceptional circumstances but evidence of previous failure to comply and taxpayer's awareness of consequences - taxpayer's appeal dismissed - Finance Act 2004, Finance Act 2004 section 66s. 66, Sch. 11, Finance Act 2004 schedule 11 subsec-or-para 4para. 4(4)(a)
1.By Notice of Appeal dated 24 February 2010, the Appellant appeals against a decision of HMRC dated 26 January 2010 to cancel the Appellant's registration for gross payment under the Construction Industry Scheme ("CIS").
2.The grounds set out in the Notice of Appeal can be summarised as follows:
(a) That all other tax payments, totalling £159,227 have been made on time for the preceding 12 months;
(b) That the Appellant has put procedures in place to ensure payments are made on time due to previous problems with payment;
(c) That the late payment in this case is an annual payment which falls outside of the normal payment pattern;
(d) That the late payment was a small amount and the failure was rectified immediately meaning it was only 20 days late;
(e) That the Appellant has since taken steps to ensure that this failure is not repeated;
(f) That over 60% of the Appellant's turnover relates to contracts paid on a gross basis and that the consequences of loss of gross payment status will be that the contracts are lost and the company will be pushed into insolvency.
3.The CIS became effective on 6 April 2007 and is the subject of Chapter 3 of Part 3 (Finance Act 2004 section 57sections 57-77) of the Finance Act 2004, and the Income Tax (Construction Industry Scheme) Regulations 2005, SI 2005 No 2045 (the "Regulations").
4.Finance Act 2004 section 63Section 63 of the Finance Act 2004 provides for the registration of an individual or company for gross payment. The requirements for registration for gross payment are dealt with by Finance Act 2004 section 64section 64 of the Finance Act 2004.
5.Section 66 of the Finance Act 2004 states:
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(1)The Board of Inland Revenue may at any time make a determination cancelling a person's registration for gross payment if it appears to them that-
(a) if an application to register the person for gross payment were to be made at that time, the Board would refuse so to register him,
(b) he has made an incorrect return or provided incorrect information (whether as a contractor or as a sub-contractor) under any provision of this Chapter or of regulations made under it, or
(c) he has failed to comply (whether as a contractor or as a sub-contractor) with any such provision.
(2)Where the Board make a determination under subsection (1), the person's registration for gross payment is cancelled with effect from the end of a prescribed period after the making of the determination (but see section 67(5)).
…
(5)On making a determination under this section cancelling a person's registration for gross payment, the Board must without delay give the person notice stating the reasons for the cancellation.
(6)Where a person's registration for gross payment is cancelled by virtue of a determination under subsection (1), the person must be registered for payment under deduction.
…
(8)A person whose registration for gross payment is cancelled under this section may not, within the period of one year after the cancellation takes effect (see subsections (2) and (4) and section 67(5)), apply for registration for gross payment.
(9)In this section "a prescribed period" means a period prescribed by regulations made by the Board.
6.Finance Act 2004 part 1 schedule 11Part 1 of Schedule 11 to the 2004 Act sets out three "tests" which must be satisfied for registration for gross payment of an individual under the CIS; the "business test, the "turnover test" and the "compliance test". The conditions in respect of the "compliance test" are:
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(1)The applicant must, subject to sub-paragraphs (3) and (4), have complied with-
(a) all obligations imposed on him in the qualifying period (see paragraph 14) by or under the Tax Acts or the Taxes Management Act 1970 (c 9), and
(b) all requests made in the qualifying period to supply to the Inland Revenue accounts of, or other information about, any business of his.
…
(3)An applicant or company that has failed to comply with such an obligation or request as-
(a) is referred to in sub-paragraph (1), and
(b) is of a kind prescribed by regulations made by the Board of Inland Revenue,
is, in such circumstances as may be prescribed by the regulations, to be treated as satisfying the condition in that sub-paragraph as regards that obligation or request.
(4)An applicant or company that has failed to comply with such an obligation or request as is referred to in sub-paragraph (1) is to be treated as satisfying the condition in that sub-paragraph as regards that obligation or request if the Board of Inland Revenue are of the opinion that-
(a) the applicant or company had a reasonable excuse for the failure to comply, and
(b) if the excuse ceased, he or it complied with the obligation or request without unreasonable delay after the excuse had ceased.
…
(7)There must be reason to expect that the applicant will, in respect of periods after the qualifying period, comply with-
(a) such obligations as are referred to in sub-paragraphs (1) to (6), and
(b) such requests as are referred to in sub-paragraph (1).
7.The "qualifying period" is defined in paragraph 14 of that Schedule as meaning the period of 12 months ending with the date of the application in question.
8.Section 67 of the Finance Act 2004 states:
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(1)A person aggrieved by-
(a) the refusal of an application for registration for gross payment, or
(b) the cancellation of his registration for gross payment,
may by notice appeal.
9.The following cases were cited by the parties in support of their submissions:
(a) Bruns (t/a TK Fabrications) [2010] UKFTT 58 (TC); [2010] TC 00371
(b) Grosvenor [2009] UKFTT 283 (TC); [2009] TC 00227
(c) Mutch [2009] UKFTT 288 (TC); [2009] TC 00232
(d) Strongwork Construction Ltd [2009] UKFTT 292 (TC); [2009] TC 00236
(e) Express Agency [2010] UKFTT 55 (TC); [2010] TC 00368
(f) Getty [2010] UKFTT 251 (TC); [2010] TC 00546
(g) Glen Contract Services Ltd [2010] UKFTT 391 (TC); [2010] TC 00673
(h) Connaught Contracts [2010] UKFTT 545 (TC); [2011] TC 00798
10.Mr I. Harrison is the Director of the Appellant Company which is a small company providing organisations such as local authorities and NHS trusts with emergency response solutions.
11.An annual Class 1A NIC payment was made late by the Appellant; payment in the sum of £361.60 was due on 19 July 2009 but not paid until 8 August 2009. There was no dispute as to the fact that payment was made late and that this was sufficient to constitute a breach of the "compliance test" under Finance Act 2004 schedule 11 subsec-or-para 4paragraph 4 of Schedule 11 to the Finance Act 2004.
12.There was no issue that there had been failure to comply with the "compliance test" under Finance Act...
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