Scofield
| Jurisdiction | UK Non-devolved |
| Judgment Date | 24 March 2011 |
| Neutral Citation | [2011] UKFTT 199 (TC) |
| Date | 24 March 2011 |
| Court | First Tier Tribunal (Tax Chamber) |
[2011] UKFTT 199 (TC)
Guy Brannan (Tribunal Judge) (Chairman), Anne Redston (Tribunal Member)
Keith Gordon and Ximena Montes Manzano, Counsel, for the Appellant
Nicola Parslow, Appeals and Review Unit, HM Revenue and Customs, for the Respondents
Construction industry scheme - withdrawal of gross payment status - Finance Act 2004 - whether R & C Commrs have discretion to withdraw gross payment status - whether discretion exercised - jurisdiction of Tribunal to review R & C Commrs decision - appeal allowed
1.This is an appeal against the cancellation of registration for gross payment in respect of the Construction Industry Scheme ("CIS"). We first heard this appeal on 14 July 2010. We adjourned the appeal for further argument on the meaning of Finance Act 2004 section 66section 66Finance Act 2004. This decision relates to the issues considered at that adjourned appeal.
2.HMRC wrote to the Appellant, Mr Scofield, on 29 January 2010 notifying him that his gross payment status under the CIS was being cancelled pursuant to section 66 Finance Act 2004. That letter identified ten compliance failures. By the time of the hearing on 14 July 2010, HMRC had accepted that eight of those were, in fact, problems relating to allocation of those payments by HMRC and were not compliance failures at all. HMRC also accepted that, as regards one other compliance failure, Mr Scofield had a reasonable excuse for that failure and that it should, therefore, be disregarded.
3.At the time of the first hearing there was, therefore, one compliance failure which formed the basis for the cancellation of gross payment status. This related to the late payment of income tax (self-assessment second payment on account) of £10,094.65 which was due on the 31 July 2009 but was not paid until 4 September 2009. The fact that this payment of income tax was made over 30 days late was accepted by both parties.
4.When we first heard this appeal on 14 July 2010 we decided ([2010] UKFTT 377 (TC); [2010] TC 00659) that Mr Scofield did not have a reasonable excuse within the meaning of Finance Act 2004 schedule 11 subsec-or-para 4paragraph 4(4) Schedule 11 Finance Act 2004.
5.In the course of the hearing we observed to Mr Shea, who represented HMRC at the first hearing, that Finance Act 2004 section 66 subsec-or-para 1section 66(1)Finance Act 2004 appeared to give HMRC a discretion whether to cancel Mr Scofield's registration for gross payment. In particular, we drew attention to the words in section 66(1) which provided:
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 …
6.Mr Shea submitted that HMRC had no discretion under section 66(1). As we recorded in our decision, he confirmed that (at paragraph 37):
once the computerised records indicated that there had been one or more compliance failures, HMRC's role was limited to determining whether there had in fact been a compliance failure within the meaning of the statutory provisions and whether there had been a reasonable excuse for any failures. In practice, usually because of lack of information at that stage, it was often difficult for HMRC to decide the question of "reasonable excuse."
7.We should perhaps, at this stage, explain that if a taxpayer has a "reasonable excuse" for a compliance failure paragraph 4(4) of Schedule 11 Finance Act 2004 allows the failure to be disregarded.
8.Mr Shea applied for the hearing to be adjourned for further legal argument on this point. We granted Mr Shea's application, adjourned the hearing for further argument on this and other related points. Our directions were as follows:
The appeal will be listed for further argument on the questions whether:
(a) HMRC have a discretion whether to cancel registration for gross payment under Finance Act 2004 section 66 subsec-or-para 1s. 66(1)Finance Act 2004; and
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(b) if we conclude that such a discretion exists:
(i) whether HMRC failed to exercise any such discretion;
(ii) the consequences of a failure to exercise any such discretion; and
(iii) the nature of the Tribunal's jurisdiction under Finance Act 2004 section 67 subsec-or-para 4s. 67(4)Finance Act 2004 to review a determination of HMRC under Finance Act 2004 section 66 subsec-or-para 1s. 66(1)Finance Act 2004.
9.The CIS was originally introduced in the 1970s to counteract perceived evasion of tax by self-employed workers in the building industry. Under the CIS a person making payments to a subcontractor is obliged to deduct an amount (effectively on account of tax) from the payment. The Scheme has been revised on several occasions and the relevant provisions are now contained in the Finance Act 2004 and regulations enacted thereunder. These provisions came into effect on 6 April 2007. In short, the requirement to deduct on account of tax is removed if the subcontractor is registered for gross payment with HMRC.
10.The relevant statutory provisions are set out below. We have set these provisions out more extensively than would usually be the case because we consider it important that the provisions of section 66(1) which are in dispute should be seen in their statutory context. The relevant provisions are as follows:
57Introduction
(1)This Chapter provides for certain payments (see section 60) under construction contracts to be made under deduction of sums on account of tax (see sections 61 and 62).
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(2)In this Chapter "construction contract" means a contract relating to construction operations (see section 74) which is not a contract of employment but where-
(a) one party to the contract is a sub-contractor (see section 58); and
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(b) another party to the contract ("the contractor") either-
(i) is a sub-contractor under another such contract relating to all or any of the construction operations, or
(ii) is a person to whom section 59 applies.
(3)In sections 60 and 61 "the contractor" has the meaning given by this section.
(4)In this Chapter-
(a) references to registration for gross payment are to registration under section 63(2),
(b) references to registration for payment under deduction are to registration under section 63(3), and
(c) references to registration under section 63 are to registration for gross payment or registration for payment under deduction.
(5)To the extent that any provision of this Chapter would not, apart from this subsection, form part of the Tax Acts, it shall be taken to form part of those Acts.
58Sub-contractors
For the purposes of this Chapter a party to a contract relating to construction operations is a sub-contractor if, under the contract-
(a) he is under a duty to the contractor to carry out the operations, or to furnish his own labour (in the case of a company, the labour of employees or officers of the company) or the labour of others in the carrying out of the operations or to arrange for the labour of others to be furnished in the carrying out of the operations; or
(b) he is answerable to the contractor for the carrying out of the operations by others, whether under a contract or under other arrangements made or to be made by him.
59Contractors
(1)This section applies to the following bodies or persons-
(a) any person carrying on a business which includes construction operations;
60Contract payments
(1)In this Chapter "contract payment" means any payment which is made under a construction contract and is so made by the contractor (see section 57(3)) to-
(a) the sub-contractor,
(b) a person nominated by the sub-contractor or the contractor, or
(c) a person nominated by a person who is a sub-contractor under another such contract relating to all or any of the construction operations.
(2)But a payment made under a construction contract is not a contract payment if any of the following exceptions applies in relation to it.
(3)This exception applies if the payment is treated as earnings from an employment by virtue of Income Tax (Earnings and Pensions) Act 2003 part 2 chapter 7Chapter 7 of Part 2 2003 of the Income Tax (Earnings and Pensions) Act (c 1) (agency workers).
(4)This exception applies if the person to whom the payment is made or, in the case of a payment made to a nominee, each of the following persons-
(a) the nominee,
(b) the person who nominated him, and
(c) the person for whose labour (or, where that person is a company, for whose employees' or officers' labour) the payment is made,
is registered for gross payment when the payment is made.
But this is subject to subsections (5) and (6).
(5)Where a person is registered for gross payment as a partner in a firm (see section 64), subsection (4) applies only in relation to payments made under contracts under which-
(a) the firm is a sub-contractor, or
(b) where a person has nominated the firm to receive payments, the person who has nominated the firm is a sub-contractor.
(6)Where a person is registered for gross payment otherwise than as a partner in a firm but he is or becomes a partner in a firm, subsection (4) does not apply in relation to payments made under contracts under which-
(a) the firm is a sub-contractor, or
(b) where a person has nominated the firm to receive payments, the person who has nominated the firm is a sub-contractor.
(7)This exception applies if such conditions as may be prescribed in regulations made by the Board of Inland Revenue for the purposes of this subsection are satisfied; and those conditions may relate to any one or more of the following-
(a) the payment,
(b) the person making it, and
(c) the person receiving it.
(8)For the purposes of this Chapter a payment (including a payment by way of loan) that has the effect of discharging an obligation under a contract relating to construction operations is to be taken to be made...
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