R & C Commissioners v RMF Construction Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 08 March 2022 |
| Neutral Citation | [2022] UKUT 67 (TCC) |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2022] UKUT 67 (TCC)
The Hon. Mr Justice Fancourt, Judge Timothy Herrington
Upper Tribunal (Tax and Chancery Chamber)
Income tax – Construction industry scheme – Whether FTT erred in deciding withdrawal of Gross Payment Status eight years after compliance failures was disproportionate – FA 2004, s. 66, 67.
In R & C Commrs v RMF Construction Services Ltd [2022] BTC 507, the Upper Tribunal (UT) set aside and remade the First-tier Tribunal’s (FTT’s) decision on removal of gross payment status in RMF Construction Services Ltd [2021] TC 07995, finding fundamental errors in law.
This was an appeal by HMRC against the decision of the FTT to allow RMF Construction Services Ltd’s (RMF’s) appeal against the cancellation of gross payment status under the construction industry scheme (CIS), after a delay of over eight years, on the grounds that it was disproportionate.
HMRC withdrew RMF’s gross payment status in 2011 on the basis that RMF did not a have reasonable excuse for compliance failures. RMF appealed to the FTT which directed that the matter be stood behind JP Whitter (Water Well Engineers) Ltd v R & C Commrs [2018] BTC 24 (Whitter). Awaiting this decision led to the delay.
Allowing the appeal, the FTT found that cancelling gross payment status would serve no purpose because RMF had continued to operate with gross payment status for some years without any further compliance failures. Further, as RMF would be able to reapply for gross payment status immediately, which would be granted, the only effect of withdrawing gross payment status would be additional administrative work for both RMF and HMRC.
Allowing HMRC’s appeal, the UT concluded:
- that the FTT was incorrect in considering that an immediate application for re-registration could be made, which led it to wrongly consider that cancellation would only cause administrative inconvenience and expense; and
- that by taking into consideration the commercial failure of RMF and additional administrative work, the FTT had decided against the decision in Whitter that HMRC should not take into account matters extraneous to the CIS regime when exercising its discretion to withdraw gross payment status.
The UT set aside the FTT’s decision and remade it by dismissing RMF’s appeal against HMRC’s decision to cancel RMF’s gross payment status.
Where a person appeals a determination made by HMRC to cancel gross payment status, it will not take effect until that appeal has been determined or abandoned (FA 2004, s. 67), after which, a person may not re-apply within one year of that cancellation.
In this case, the Upper Tribunal found the First-tier Tribunal’s decision ignored this rule and that to take account of matters after the determination would give an appellant an advantage over other non-compliant taxpayers who did not appeal.
Comment by Laura Burrows, Senior Tax Writer at Croner-i Ltd.
Bayo Randle, Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the appellants
The Respondent appeared in person through Steve Bache, Financial Controller
[1] This is the appeal of the appellants (“HMRC”) from the decision (“the Decision”) of the First-tier Tribunal (“FTT”) (Judge Philip Gillett) released on 15 January 2021. The FTT allowed the appeal of the Respondent (“RMF”) against HMRC's decision to cancel RMF's gross payment status under the Construction Industry Scheme (“Gross Payment Status”). Gross Payment Status means that a contractor may pay its sub-contractor in full without deducting part of what is due and paying it instead to the Revenue on account of the sub-contractor's liability to tax.
[2] The basis of HMRC's decision was that RMF had failed to comply with its Tax and National Insurance contributions obligations under s66(1) Finance Act 2004 (“FA 2004”), in particular in respect of the late filing of its corporation tax return for the accounting period ending 31 July 2010 and the late payment of RMF's corporation tax liability for the period ended 31 March 2013. This should have been paid on 1 January 2014 but was not in fact paid until September 2014.
[3] At the request of HMRC, RMF's appeal to the FTT appeal was stayed for some years behind the lead case of JP Whitter (JP Whitter (Water Well Engineers) Ltd v R & C Commrs [2018] BTC 24 (“Whitter”). This was finally decided by the Supreme Court in a judgment given on 13 June 2018.
[4] The FTT decided that withdrawal of RMF's Gross Payment Status over eight years after its failure to file its corporation tax return on time, together with other minor infringements, would be totally disproportionate. The FTT said at [8] of the Decision that the objective of the Construction Industry Scheme (“CIS”), i.e., the enforcement of compliance, has been achieved by the mere threat of the withdrawal of Gross Payment Status and to carry through on that threat by withdrawing gross status now, when RMF has been fully compliant since that time, would serve no useful purpose whatsoever and is therefore disproportionate.
[5] HMRC now appeals to this Tribunal with the permission of the FTT. HMRC contend that the FTT (i) misunderstood the limits of its jurisdiction and the nature of its review function (ii) misapplied the proportionality test and (iii) relied on impermissible factors when determining that withdrawal of Gross Payment Status was disproportionate.
[6] The requirements for registration for Gross Payment Status under the CIS are set out in s 64 FA 2004 which provides so far as relevant as follows:
(1) This section sets out the requirements (in addition to that in subsection (1) of section 63) for an applicant to be registered for gross payment.
…
(4) Where the application is for the registration for gross payment of a company (otherwise than as a partner in a firm)–
- the company must satisfy the conditions in Part 3 of Schedule 11 to this Act, and
- if the Board of Inland Revenue have given a direction under subsection (5), each of the persons to whom any of the conditions in Part 1 of that Schedule applies in accordance with the direction must satisfy the conditions which so apply to him.
(5) Where the applicant is a company, the Board may direct that the conditions in Part 1 of Schedule 11 to this Act or such of them as are specified in the direction shall apply to–
- the directors of the company,
- if the company is a close company, the persons who are the beneficial owners of shares in the company, or
- such of those directors or persons as are so specified,
as if each of them were an applicant for registration for gross payment.
…
[7] Section 66 FA 2004 sets out the circumstances in which registration for gross status may be withdrawn as follows:
(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–
- 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,
- 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
- 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)).
(3) The Board of Inland Revenue may at any time make a determination cancelling a person's registration for gross payment if they have reasonable grounds to suspect that the person–
- became registered for gross payment on the basis of information which was false,
- has fraudulently 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
- has knowingly failed to comply (whether as a contractor or as a sub-contractor) with any such provision.
(4) Where the Board make a determination under subsection (3), the person's registration for gross payment is cancelled with immediate effect.
(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.
(7) Where a person's registration for gross payment is cancelled by virtue of a determination under subsection (3), the person may, if the Board...
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The Commissioners for HM Revenue and Customs v RMF Construction Services Limited [2022] UKUT 00067 (TCC)
...[2022] UKUT 00067 (TCC) Appeal number: UT/2021/00059 INCOME TAX- construction industry scheme – whether FTT erred in deciding withdrawal of Gross Payment Status eight years after compliance failures was disproportionate – ss 66, 67 Finance Act 2004 UPPER TRIBUNAL TAX AND CHANCERY CHAMBER TH......