In Eric Donnithorne v HMRC [2016] TC05017 a liability under the Construction Industry Scheme (CIS) was discharged as it was reasonable that the taxpayer did not realise he had any obligation to make deductions.

The Tribunal summarised the facts of the case as ‘rather unusual’:

  • The taxpayer was a Director of two nursing homes, one of which needed building work.
  • He took on the role of arranging this work, entering into contracts with builders, paying them and then seeking reimbursement from the nursing homes.
  • The taxpayer confirmed that the builders were self-employed and there was therefore no PAYE obligation.
  • However, he did not consider the CIS scheme and did not make any deductions under it.

The taxpayer’s representative conceded that he was an intermediary for CIS purposes.  The First Tier Tribunal (FTT) did not seem convinced that this was strictly the case, especially as the taxpayer made no income and invoices were issued to the nursing home.  However, odd as they considered this to be they accepted the premise and went on to consider whether the CIS liability could be discharged.

The FTT expressed sympathy with the taxpayer, stating that they believed he had been totally and honestly unaware of any potential liability under the CIS rules.   

They also found that there was no lack of reasonable care in failing to comply with the CIS requirements as:

  • Having considered and correctly rejected the possibility of a PAYE liability it was reasonable to fail to note any other obligations to deduct tax.
  • It was appropriate to judge reasonable care by reference to the taxpayer’s activities: he was not in the construction industry and therefore most likely had never heard of CIS.
  • It was only by accident that any CIS obligations arose: if the nursing home had contracted with the builders directly there would have been no liability.

The taxpayer’s liability to account for CIS payments was therefore discharged.


The FTT acknowledged that the facts of this case were rather odd, and they had distinct sympathy for the taxpayer’s position.

The case does however highlight the importance of considering CIS obligations even when it is not immediately obvious that a taxpayer is acting as a contractor.  With a different set of facts the FTT could well have been less generous!

Beyond CIS there are many other tax issues to consider when a director commissions building work.  These are discussed in our subscriber guide Creating an office at home or converting part of a home into an office


Our subscriber guide: CIS: Contractors and Subcontractors

Case reference: Eric Donnithorne v HMRC [2016] UKFTT TC05017