UT: CIS Gross Payment Status removed eight years after compliance failures

In HMRC v RMF Construction Limited [2022] UKUT 00067, the Upper Tribunal (UT) overturned the FTT decision allowing an appeal against the removal of CIS Gross Payment Status. The decision to remove the status was based on compliance failures and that these failures happened eight years before the status is to be removed did not make its removal disproportionate.

• As part of a CIS Tax Treatment Qualification Test (TTQT) in 2011, HMRC found that RMF had made three compliance failures:
  • Its Corporation Tax return was filed 431 days late.
  • Two Contractor’s Returns were filed late: one by 78 days and the other by 34 days.
• Following correspondence, HMRC sought to withdraw CIS gross payment status owing to the compliance failures but accepted that RMF had a Reasonable excuse for failing to submit the contractors' monthly returns on time.
  • HMRC found a further five compliance failures involving Corporation Tax returns and a P35 return during the period of correspondence.
• Following a review by HMRC, the withdrawal of gross payment status was upheld.
• RMF Appealed to the FTT in December 2012.
  • HMRC requested the appeal be stayed behind JP Whitter (Water Well Engineers) Limited v HMRC [2018] UKSC 31. This delayed the RMF case being heard by eight years and the company maintained their gross payment status while the appeal was stayed.

The FTT allowed RMF’s appeal, finding that the withdrawal of CIS gross status over eight years after the relevant offences would be totally disproportionate:

• Despite the compliance failures in 2011 and 2012, RMF had since met its tax obligations.
• The objective of the compliance regime for CIS is to encourage compliance, not to punish non-compliance.
  • This objective had already been achieved by the threat of withdrawal of gross status, given RMF’s subsequent good record.
• Withdrawing gross payment status would only serve to create administrative work as RMF would be able to reapply for gross status immediately after. This status was likely to be granted.

HMRC appealed to the UT who reversed the decision of the FTT finding that:

• The FTT had misunderstood the limits of its jurisdiction and review function:
  • The FTT should have considered whether the power to cancel the registration was correctly arrived at.
  • At the time of the cancellation decision in 2012, RMF’s compliance failures gave HMRC grounds to cancel the registration.
  • The FTT wrongly considered the eight-year period between the decision and the cancellation a relevant factor.
• FTT considered the wrong thing when deciding what was disproportionate:
  • The CIS regime itself is regarded as proportionate and this included the issue of penalties for non-compliance.
  • Penalties for non-compliance are undermined if a taxpayer is able to avoid them with subsequent compliance during the course of the appeal.
• The FTT relied on impermissible factors in considering the withdrawal was disproportionate.
  • The commercial consequences for RMF of the removal of gross payment status was a matter that did not relate to the requirements of the CIS regime.
  • The FTT had erred in law in relying on this factor.

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 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? 

CIS repayments: Top 10 tips
In 2013 HMRC published a list of 'Top 10 tips' for companies who make repayment claims under the Construction Industry Scheme (CIS). The list is no longer available on the HMRC website but still provides a useful checklist.

CIS Gross payment cancellation the right decision
In JP Whitter (Water Well Engineers) Limited v HMRC [2018] UKSC 31, the Supreme Court (SC) agreed that HMRC did not have to consider the wider impact on the taxpayer’s business when cancelling its Construction Industry Scheme (CIS) gross payment status.

Withdrawal of CIS gross payment status was disproportionate
In RMF Construction Services Ltd v HMRC [2021] TC07995, the First Tier Tribunal (FTT) allowed the company’s appeal against the withdrawal of Construction Industry Scheme (CIS) gross payment status eight years after associated compliance failures.

External links

HMRC v RMF Construction Limited [2022] UKUT 00067