In Sonny Joseph McEwen v HMRC [2015] TC04677 the first tier tribunal (FTT) found that payments to a subcontractor had been paid gross: there was no evidence of any tax deduction.

Mr McEwen was a subcontractor, he claimed he had been carrying out construction work for a contractor (Tarmac) and as such should have been paid net of basic rate tax.  He had received cash payments of £400 per week for 46 weeks of the year (£18,400), and completed his Returns for 2011/12 and 2012/13 on the basis that his income was £23,000 (gross) with £4,600 tax deducted.

He claimed that he received no evidence of the tax deduction as the accountant hired by Tarmac to produce the documentation and prepare his self assessment returns had died. Tarmac had been 'unhelpful' in response to requests for information.

HMRC opened an enquiry into the two tax returns. It noted that Tarmac had no record of the taxpayer in the years under enquiry and it had only verified him as subcontractor for the first time two years later. As there was no evidence that the tax had been deducted it assessed him for tax on gross amount of £23,000.

The FTT agreed with HMRC that as there was no evidence of deduction the payments received would have to be considered gross income.  It did not doubt that the taxpayer had believed that he was paid under deduction of tax, and accepted that he had grossed up the amounts he had actually received to include the tax he thought that he had paid.

The FTT therefore amended assessments to £18,400 of gross income and not £23,000.


HMRC appears to have investigated Tarmac's apparent failure to make deductions from payments to subcontractors and simply found that Mr McEwen was not on its books. That is always the obvious starting point. Under the Income Tax (CIS) Regulations SI2005/2045, reg 9, HMRC can recover deductions from the contractor if the subcontractor has not accounted for tax. 

Case reference: Sonny Joseph McEwen v HMRC [2015] UKFTT TC04677