RMF Construction Services Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 15 January 2021 |
| Neutral Citation | [2021] UKFTT 9 (TC) |
| Date | 15 January 2021 |
| Court | First Tier Tribunal (Tax Chamber) |
[2021] UKFTT 9 (TC)
Judge Philip Gillett
Income tax – Construction industry scheme – Withdrawal of gross payment status under FA 2004, s. 66 – Whether proportionate – Held not – Appeal allowed.
The First-tier Tribunal (FTT) found that the withdrawal of the company's gross payment status under the construction industry scheme (CIS) after a delay of approximately eight years was disproportionate.
HMRC withdrew (under FA 2004, s. 66) RMF Construction Services Ltd's (the Appellant's) gross payment status under the CIS on the basis that the Appellant did not have a reasonable excuse for some of its compliance failures.
The Appellant appealed to the FTT against HMRC's decision on the following grounds:
- a significant amount of time had elapsed since the company failed to comply with its compliance requirements; for example, it had been eight years since HMRC rejected the Appellant's appeal against the outcome of the Tax Treatment Qualifying Test (TTQT) carried out by HMRC;
- for the last four or five years, the Appellant has satisfied all of the requirements to be granted gross payment status;
- if the company were to apply for gross payment status now, its application would be granted; and
- although the Appellant accepted that the outcome of the TTQT was technically correct, it could not accept that withdrawing gross payment status eight years later was appropriate.
The reason for the delay in the withdrawal of the company's gross payment status was that HMRC had asked for the appeal to be stayed behind JP Whitter (Water Well Engineers) Ltd v R & C Commrs [2018] BTC 24. In JP Whitter (Water Well Engineers) Ltd, the Supreme Court dismissed the taxpayer company's appeal against the removal of its gross payment status, rejecting the company's argument that, in making its decision, HMRC should have taken into account the impact on the company's business.
In addressing the issue of proportionality, the FTT, drawing on the decision of the Upper Tribunal in Edwards v R & C Commrs [2019] BTC 516, found that the correct approach was to consider whether the withdrawal of gross payment status in this case was “not merely harsh but plainly unfair” in the context of the objectives of the CIS.
The FTT allowed the appeal, finding that the objective of the CIS, ie to ensure compliance, had been achieved by the threat of withdrawal of gross payment status; to carry out that threat in the current circumstances would be disproportionate.
Comment This case is interesting for the FTT's comments on proportionality in the context of the CIS; however, much turned on the eight-year delay in removing the company's gross payment status.
[1] This is an appeal against HMRC's decision to withdraw the Appellant's gross payment status under the Construction Industry Scheme.
[2] HMRC withdrew the Gross Payment Status because the Appellant (“RMF”) failed to comply with their Tax and National Insurance contributions obligations under s66(1) Finance Act 2004 (“FA 2004”).
[3] It is accepted by HMRC that RMF had a reasonable excuse for failing to submit contractor's monthly returns on time. It is not accepted that the company has a reasonable excuse for the other compliance failures.
[4] It is accepted by RMF that the Corporation Tax (CT) return for the Accounting Period Ending 31 July 2010 was filed late. HMRC's ground for withdrawing the gross basis was the late payment of the company'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.
[5] At the request of HMRC, this appeal was stayed for some time behind the case of JP Whitter (Water Well Engineers) Ltd v R & C Commrs [2018] BTC 24. This was finally decided by the Supreme Court in a judgement given on 13 June 2018.
[6] Pending the determination of this appeal the appellant has retained gross payment status for the purposes of the Construction Industry Scheme.
[7] RMF has put forward five grounds of appeal:
- There has been a significant amount of time from the period RMF failed to comply with s66(1) Finance Act 2004. It has been eight years since its appeal was rejected, nine years from the date HMRC carried out their Tax Treatment Qualifying Test (TTFT) and more than 10 years from the end of the accounting period under initial review by HMRC.
- The company currently satisfies all of the requirements to be granted Gross Payment Status and has done so for the last four to five years.
- If the company were to apply for Gross Payment Status now it would comply with the requirements and would be granted Gross Payment Status.
- The company accepts that the outcome of the review in 2012 was technically correct, but cannot accept that to withdraw Gross Payment Status eight years later, in 2020, is appropriate.
[8] The tribunal decided that the withdrawal of CIS gross status over eight years after the “offence” of the company's failure to file its corporation tax return on time, together with other minor infringements would be totally disproportionate. The objective of the CIS, ie, the enforcement of compliance, has been achieved by the mere threat of the withdrawal of gross status and to carry through on that threat by withdrawing gross status now, when the company has been fully compliant since that time, would serve no useful purpose whatsoever and is therefore disproportionate.
[9] The appeal is therefore ALLOWED.
[10] I received a Statement of Case from HMRC and submissions from Mr McGee, the director of RMF, both of which contained statements of facts. Mr McGee, in his submissions states that given the passage of time he cannot remember in any detail specific events from the relevant time such as might enable him to refute HMRC's statement of the facts. There is therefore no disagreement between the parties as to the essential facts. I therefore find the following as matters of fact.
[11] The company was incorporated on 5 July 2000 and commenced trading on 1 August 2000. The company undertakes construction work.
[12] On 8 September 2011 HMRC carried out a Tax Treatment Qualifying Test (TTQT), or Scheduled Review, to ensure that the company was meeting its tax obligations during the period from 2 September 2010 to 2 September 2011.
[13] HMRC identified three failures during the period examined:
- The company's Corporation Tax Return due on 31 July 2011 in respect of the accounting period ended 31 July 2010 was not received until 5 October 2012 and was therefore 431 days late.
- The company's Contractor's Return due on 19 July 2011 was not received until 5 October 2011 and was therefore 78 days late.
- The company's Contractors Return due on 19 May 2011 was not received until 22 June 2011 and was therefore 34 days late.
[14] HMRC wrote to the...
To continue reading
Request your trial
-
R & C Commissioners v RMF Construction Ltd
...(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. Summary This was an appeal by HMRC against the decision of the FTT to allow RMF Construction Services ......