In Harbron Recruit Ltd v HMRC [2025] TC09395, the First Tier Tribunal (FTT) found ‘reasonable care’ had been taken by a taxpayer who took professional advice regarding CIS deductions and implementing agency worker rules.

Construction site

In 2014, the Agency Rules were introduced to ensure workers under the ‘Supervision, Direction and Control’ of an agency were deemed employees.  After seeking professional advice, Harbron Recruit Ltd, (HRL) understood there was no longer a requirement to deduct Construction Industry Scheme (CIS) payments made to agencies and proceeded to submit nil CIS returns.       

  • Harbron Recruit Ltd recruits workers for end clients, mainly in the construction industry.
  • HRL did not engage the workers directly but did so through an agency. Provided the agency did not have ‘gross’ status, CIS payments were deducted from payments.
  • After taking specialist professional advice on the implementation of the agency rules, James Harbron, director of HRL, understood CIS deductions were no longer required as he believed the agencies were paid net of tax under PAYE.

HMRC opened an enquiry and raised an assessment for £483,675 on HRL for excess tax in relation to the CIS payments.  

HRL claimed they were not liable for the excess tax as both conditions A and B of Regulation 9, of the CIS regulations were not met. 

The conditions to be satisfied are:  

  1. Where failure to make deductions has arisen, it is from an error in ‘good faith’ or a genuine belief that the payment wasn’t due.
  2. No Income Tax or Corporation Tax liability would have arisen for the recipient of the payment, or if a liability had arisen, that liability had been declared to HMRC.

HMRC accepted that condition B applied to £129,513 of the excess tax but not the remainder and did not accept that condition A applied.

The FTT found:

  • There was no underlying technical issue since there was no dispute that the payments were within CIS.
  • HMRC refused to apply condition B to part of the excess tax, but the legislation does not allow for the right of appeal against the refusal of condition B. The FTT has no jurisdiction to allow that appeal.
  • It was clear from the findings that Mr Harbron believed he was acting correctly and there was no evidence to prove that a lack of good faith had occurred.
  • Condition A was refused by HMRC on the basis ‘Reasonable Care’ had not been taken.

The FTT found:  

  • Mr Harbron realised he did not understand the new rules and his focus was on ensuring his tax affairs were approached correctly.
  • Specialist advice was sought on the situation and a significant amount of time was spent establishing the position of the workers.
  • The interaction of the agency rules and CIS rules was complex and Mr Harbron had done ‘his best’ to understand the provisions and believed he was being compliant.
  • HMRC’s own officers failed to provide a solid understanding of the rules thus proving their complexity.
  • Reliance on an advisor was the correct step to take. Unfortunately, a mistake was made but this did not prevent condition A from being met.

HMRC had also argued that typically ‘ignorance of the law’ is not a defence.  The FTT found that Mr Harbron was not ignorant of the law but misunderstood the technical complexity of the law.  

The appeal was allowed. 

Useful guides on this topic

Agency workers: Employment intermediary's rules
What are the tax rules for Employment Intermediaries and Agencies? Are agency workers subject to PAYE?

Supervision, direction or control
What do Supervision, Direction and Control mean? Why are they significant in terms of employment status, agency workers and tax relief on expenses?

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

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

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Harbron Recruit Ltd v HMRC [2025] TC09395

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