In JP Whitter (Waterwell Engineers) Limited v HMRC [2016] EWCA Civ 1160 the Court of Appeal held that HMRC did not have to take into account the adverse impact on a taxpayer’s business when cancelling a CIS gross payment registration.

The Construction Industry Scheme (CIS) requires contractors to deduct tax at source on all payments made to subcontractors, unless the subcontractor is registered with HMRC for gross payment status.

Registration for gross payment status is subject to complying with various requirements regarding filing and payment of taxes, and is reviewed by HMRC on an annual basis.  HMRC have the power to cancel a gross payment registration if these requirements are not met.

  • The taxpayer is a small family owned company which carries on a business as water well engineers.
  • They had been registered for gross payment under CIS for many years, but failed reviews in 2009, 2010 and 2011 due to late payment of PAYE.
  • HMRC allowed the taxpayer’s appeals in 2009 and 2010, but refused a further appeal in 2011 and cancelled the taxpayer’s gross payment registration.

The taxpayer appealed on the grounds that:

  • Their major customer would only deal with businesses who had gross payment status.
  • If their gross payment status were removed this would severely affect the company’s trade and lead to redundancies.
  • Although there was no reasonable excuse for their failures, HMRC should take into account the adverse effect on the company’s business when deciding whether to cancel their registration.

The First Tier Tribunal (FTT) agreed with the taxpayer.  HMRC appealed to the Upper Tribunal (UT), who overturned the FTT decision and reinstated the cancellation.

The Court of Appeal has now upheld the UT’s decision, finding that:

  • The CIS rules neither authorise nor require HMRC to take into account the likely impact on the taxpayer’s business and financial position when deciding whether to cancel a gross payment registration.
  • Given how prescriptive the rules are, if Parliament had intended this to be the case it would have expressly said so.
  • The cancellation was proportionate: the adverse effect on the taxpayer’s business was a predictable consequence of non-compliance, for which they only had themselves to blame.

The taxpayer’s appeal was therefore dismissed and the cancellation of their gross payment registration upheld.


This decision was further upheld by the Supreme Court in JP Whitter (Water Well Engineers) Limited v HMRC [2018] UKSC 31.


Case reference: JP Whitter (Waterwell Engineers) Limited v HMRC [2016] EWCA Civ 1160

Our subscriber guide: CIS: Contractors and Subcontractors