In Access Contracting Services Ltd v HMRC [2023] TC08994, the First Tier Tribunal (FTT) found that a company had not taken reasonable care to comply with the Construction Industry Scheme (CIS) regulations. The FTT upheld HMRC’s assessment of CIS under-deducted from subcontractors.

  • Access Contracting Services Ltd (ACS) provided the labour of tradespeople ranging from general labourers to crane drivers.
  • From incorporation, a director of ACS (MB), took responsibility for back-office matters.
    • MB was assisted in meeting ACS’s general compliance obligations by an office manager. This included completing the company’s Construction Industry Scheme (CIS) returns.
  • MB retired in 2011. Compliance and administrative duties were handed over to the office manager.
    • MB made it clear to the continuing directors that the office manager was fully capable of running the compliance function of the business, including confirming the CIS payment status of subcontractors and completing CIS returns.
  • In 2014-15, ACS started work for three new clients. ACS’s office manager confirmed the CIS status of each new client with HMRC: all three should have been subject to CIS deductions.
    • Despite this, ACS made payments gross and submitted CIS returns reflecting those gross payments.
  • Following an enquiry, HMRC sought to recover, from ACS, £447,000 of under-deducted CIS in respect of two of the clients.
    • Penalties of £97,000 were charged on the basis of a careless inaccuracy with prompted disclosure.
    • HMRC did not apply the maximum penalty reduction for ‘telling’ and ‘helping’, resulting in a penalty of 21.75%.
  • ACS Appealed to the First Tier Tribunal (FTT).

Regulation 9 of The Income Tax (Construction Industry Scheme) Regulations 2005 allows HMRC to issue a direction relieving a contractor of their CIS liability, where certain conditions are met.

This includes where the failure to make a CIS deduction arose from an error made in good faith or a genuine belief that the payment was not within the scope of CIS. It is, however, necessary for the contractor to have taken reasonable care to comply with the CIS regulations for this to apply.

The FTT found that:

  • ‘Reasonable’ in the context of Regulation 9 must be assessed by considering the size of the business, both in terms of practical processes and checks for its size, as well as the scale of the payments it makes.
    • There were no checks or controls on CIS compliance: the office manager was not required to detail any CIS status checks performed.
    • The payments in question were substantial, totalling over £700,000 in 2015-16.
    • While it was reasonable to rely on the office manager in some respects of her role, checks should have been in place to deal with matters that posed significant risks to the business, such as compliance with legislation.
  • Due to the significant impact that failing to comply with the CIS regulations would have on ACS, and the lack of controls and checks evident in that respect, ACS had not exercised sufficient reasonable care to comply with the CIS regulations.
    • A direction under Regulation 9, relieving ACS of its liability, was not appropriate.
  • ACS was in regular contact with HMRC, appeared engaged and had provided all information that it could to HMRC.
    • The FTT concluded that the maximum penalty reduction for ‘telling, helping and giving’ should be applied.

The appeal was dismissed.

Useful guides on this topic

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

Penalties: CIS (Construction Industry Scheme)
When are Construction Industry Scheme (CIS) penalties charged and how much are they?

CIS repayments: Top 10 tips
What are the ten top tips for companies who make repayment claims under the Construction Industry Scheme (CIS)? How do I make a CIS repayment claim?  

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? 

Construction Industry Contractors and Sub-contractors: Tax Overview
What expenses can contractors and sub-contractors claim for tax purposes? How is their income taxed? Are there special tax and accounting rules for contractors and sub-contractors? What are the VAT rules for contractors? 

External link

Access Contracting Services Ltd v HMRC [2023] TC08994

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