In Miroslaw Pawlikowski v HMRC [2020] TC7584, the First Tier Tribunal (FTT) dismissed the taxpayer’s appeal against HMRC’s denial of tax credits for 2016/17 in respect of certain CIS deductions. The taxpayer failed to keep adequate records to support his claim.

Based on section 50(6) of the Taxes Management Act 1970, the onus is on the taxpayer to substantiate a claim for Construction Industry Scheme (CIS) deductions on appeal to the Tribunal.

  • The taxpayer was a sub-contractor in the construction industry. He claimed CIS deductions of £6,628 as a credit against Income Tax on his 2016/17 tax return.
  • HMRC opened an enquiry and allowed tax credits totalling £5,434 in respect of CIS deductions they could verify against their records. Unverified tax credits of £1,184 were denied and allowed as a deduction against the taxpayer’s turnover instead.
  • The taxpayer’s accountant did not provide any CIS deduction statements to HMRC to support the tax credits claimed on the tax return.

On appeal to the FTT:

  • The taxpayer argued that he was unable to obtain CIS deduction statements from the contractor. He should not be penalised for this as it is the contractor’s responsibility to issue CIS deduction statements and pay the CIS deductions over to HMRC. The approach taken by HMRC was unfair as a denial of tax credits would lead to a double recovery of Income Tax.
  • HMRC argued that the taxpayer cannot base their tax calculations on unevidenced assertions. Under section 62(2) of Finance Act 2004, a sub-contractor can only claim a tax credit for CIS deductions actually made and paid to HMRC. 

The FTT dismissed the taxpayer’s appeal as their submissions did not evidence the CIS deductions claimed. In particular

  • CIS deductions were claimed in respect of payments that the taxpayer later admitted were made gross.
  • The net amounts stated on sub-contractor invoices did not correlate to the payments received in the bank statements and the total CIS tax deductions stated on these invoices did not agree to the tax return.

The FTT also concluded that as it has no general judicial review function. It has no jurisdiction to judge whether the approach taken by HMRC was unfair. HMRC acknowledged that sometimes contractors do not issue CIS deduction statements but this does not remove the need for sub-contractors to keep accurate records which support accurate tax returns.


CIS: Contractors and Subcontractors
What is the Construction Industry Scheme? Who does it apply to? How does it work? 

CIS: Construction Industry reverse charge
The Construction Industry Scheme (CIS) VAT Domestic Reverse Charge (DRC) applies to supplies of construction services from 1 March 2021.

How to appeal an HMRC decision
What type of decision can you appeal? What are your different options when you disagree with HMRC? What are the key steps in making an appeal?

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Miroslaw Pawlikowski v HMRC [2020] TC7584