Print

Aross the main taxes, a taxpayer can generally avoid being penalised for non-compliance if he can put forward a defence of “reasonable excuse”. In many cases this has to be decided by the First-tier Tribunal. This is a round-up of recent decisions.

The Construction Industry Scheme (CIS)
HMRC may remove a business’gross payment status if it does not make its monthly returns or payments on time. The taxpayer has the right of appeal, if he has a reasonable excuse for being late. 

In Prior Roofing Ltd v HMRC [2009] UKFTT 302 (TC) a company was late in paying monthly PAYE/CIS deductions 8 times. Only 1 payment was more than 14 days late, and three were only 7 or less days late. HMRC withdrew its gross payment status, and the company appealed.
The company’s defence: the specialist roofing contractor found that “someone had turned the lights off” in their business when they lost 75% of their turnover as a result of the financial crisis its main customer (Persimmon Homes) put a halt on £30 million of housing stock under contruction. Lloyds TSB refused to extend the company’s overdraft facility. The directors did everything they could to ensure CIS compliance, including sacrificing £50,000 of their salaries, and injected £160,000 into the business.
HMRC’s case: it said that there was a fundamental need that all contractors and sub-contractors should be treated equally and fairly. Cash-flow problems are a normal part of doing business. As the rules were clear and the company had contravened them it had no choice about removing gross payment status.
The Tribunal’s decision: the judge disagreed with HMRC, he said, the Tribunal “does not consider it possible to treat companies “equally and fairly” without looking very closely at the particular circumstances leading up to the compliance failures.” Not all cases are the same and not all contractors suffered the same set of circumstances, additionally, consideration should be taken to the steps taken by management to solve the difficulties. In view of the exceptional circumstances it allowed the company’s appeal.

Point to note:

In Strongwork Contruction Ltd v. HMRC [2009] UKFTT 292 (TC) the Tribunal did not accept that the company had reasonable excuse because it was persistently late in making its monthly PAYE/CIS payments before and after the events which related to the excuse actually took place.

Point to note:

Points to note: