CIS gross payment status allowed despite shadow director

In Bagri Services Ltd v HMRC [2021] TC08357, the First Tier Tribunal (FTT) confirmed that HMRC could not revoke gross payment status under the Construction Industry Scheme (CIS) on the basis of false information. There was no requirement to notify Companies House that there was a shadow director of the company and the information on which gross payment status was granted was not therefore false.

• Bagri Construction Services Limited (BCSL) registered with HMRC under the Construction Industry Scheme (CIS) and held gross payment status.
• On 23 August 2016, HMRC revoked gross payment status with immediate effect as HMRC considered that the company has knowingly failed to comply with the requirements of the scheme.
• BSCL had an appeal rejected by HMRC following a statutory review, no further appeal was made to the tribunal.
• On 16 September 2016, Bagri Services Limited (the Appellant) was incorporated by NK, the spouse of the sole director of BCSL, KS. NK was the sole shareholder and director of the Appellant registered with Companies House.
• In January 2017, shortly after the gross payment status of BCSL was revoked, NK called HMRC to request the Appellant was registered for CIS gross payment status. On that call, NK was directed by KS when answering questions raised by HMRC.
• Criminal investigations were undertaken involving chains of companies under CIS which resulted in NK being interviewed where she confirmed she was a director of the Appellant in name only.
• Following that interview, HMRC reached the conclusion that the Appellant had become registered for gross payment status on the basis of false information, namely that KS was a shadow director and this was not included in the information provided to HMRC at the time of registration.
• The cancellation of gross payment status was issued on 11 June 2019.
• Following a Statutory Review, the Appellant Appealed to the FTT.

The FTT allowed the appeal finding that:

• KS was at all material times a shadow director of the Appellant.
• The burden of proof was on HMRC to show the Appellant had become registered on the basis of false information.
• Under the Companies Act 2006, there was no obligation to notify Companies House of the existence of shadow directors.
• As there was no obligation to notify Companies House of shadow directors, the information provided to HMRC on which gross payment status was based was not false.
• If HMRC had specifically asked whether there was a shadow director and that had been answered incorrectly, gross payment status could have been revoked for the reasons given.

Useful guides on this topic

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

CIS: Construction Industry reverse charge
What is the CIS VAT reverse charge? How do you account for VAT? Can you still cash account for VAT? What administrative changes do I need in order to operate the reverse charge? 

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

Statutory Review (by HMRC)
What is a Statutory Review? Is it automatic? What happens in a Statutory Review? Can you challenge a Statutory Review's findings? Can you influence a Statutory Review? 

External links

Bagri Services Ltd v HMRC [2021] TC08357