First-tier Tribunal (Tax)

[2009] UKFTT 286 (TC)

TC00230

Appeal number: TRANS September 889

Cancellation of Gross Payment Status under s66(1) Finance Act 2004; reasonable excuse for failures; trading problems; use of discounted invoice system; proportionality

FIRST-TIER TRIBUNAL

TAX

                                               A LONGWORTH & SONS LTD

                                                                                                             Appellant

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                        REVENUE AND CUSTOMS (Income Tax/Corporation Tax)         

                                                                                                                   Respondents

                                                TRIBUNAL: JOHN N. DENT LL.B.

Sitting in public in Manchester on 19^th May 2009

Mr Sinclair of Horwath Clarke Whitehill LLP for the Appellant

Mr Fieldsend Officer of HM Revenue & Customs for the Respondents

© CROWN COPYRIGHT 2009

DECISION

1.     This was an appeal by the company against the cancellation by HMRC of its Gross Payment Status under s66(1) Finance Act 2004 following an ongoing review of the appellant’s compliance with the Construction Industry Scheme (CIS) Regulations

2.     The issue was whether the decision by HMRC to withdraw the Gross Payment Status was correct, and whether the appellant had a reasonable excuse throughout  for the failures which led to the HMRC decision.

3.     The Tribunal had had an opportunity to read the submission of HMRC  prior to the hearing, along with the supporting documentation C1 to C25 and Legislation L1 to L20. The Tribunal also had a copy of Mr Sinclair’s email 0f 12 May 2009.

4.     HMRC outlined the failures by the company to fully comply with its tax obligations during the qualifying period from 18 April 2007 to 18 April 2008. There had been 6 late payments of PAYE/NIC as an employer and/or CIS tax. These are set out at page 5 of HMRC’s submission. HMRC had withdrawn Gross Payment Status for the reasons set out in the HMRC submission.

5.     There had been a review meeting between HMRC and the company on 5 November 2008, following which agreed notes were produced. HMRC completed an internal review on 19 November 2008 when 2 further failures were found, namely late payments of PAYE tax and NIC as an employer.

6.     Further discussions had taken place between HMRC and Mr Sinclair, who had now been appointed by the company. HMRC had not changed its decision on withdrawal of Gross Payment Status. The matter therefore came before the Tribunal.

7.     The company were not denying the breaches. They sought to put forward reasons why the company had a reasonable excuse for the failures. Mr Sinclair outlined the involvement of Skipton Business Finance , who had been brought in by the company at the time of a drop in turnover, to pay discounted invoices on a monthly basis. The company had previously had an overdraft facility of $50,000, which was reduced to zero. The company had had no alternative to bring in Skipton Business Finance. The agreement with Skipton had started in July or August 2007 and was a 12 month agreement, requiring 6 months notice to terminate. It had been terminated in November 2008. The company had gone back to the bank, who had given them a larger overdraft.

8.     Mr Sinclair explained that the company had had suppliers and employees to pay, and money had been put where it was most needed. The company had not been aware of the possible impact of late payments to HMRC.

9.     The company had complied since Gross Payment Status had been withdrawn.

10.  Mr Sinclair raised the issue of possible non-receipt of the HMRC leaflet CIS 372. Mr Fieldsend confirmed that it had been forwarded to the company. The company had looked for it but had been unable to find it.

11.  The Tribunal found that the company had been in default on 8 occasions during the qualifying period. This had partly been brought about by the company’s lack of awareness of the serious consequences which might flow from such failures, partly by the use of the discounted invoicing system with Skipton Business Finance, and partly by the company choosing to preferring to discharge liabilities other than the liability to HMRC.

12.  The Tribunal did not accept that the trading problems suffered by the company, whether due to cash flow or losses, were exceptional. The Tribunal concluded that the company had no reasonable excuse for the failures. HMRC had taken action which they were entitled to take, and although the consequences were harsh, they were provided for in law. The company had asked if they could be subjected to a financial penalty instead of withdrawal of Gross Payment Status, or if the penalty could be suspended. Neither of these is permissible in law, and so could not be considered by the Tribunal. Nor could the Tribunal consider proportionality, as this argument cannot be considered to be a reasonable excuse.

13.  For the reasons set out above, the Tribunal rejected the appeal, and confirmed the HMRC decision to withdraw the Gross Payment Status.

14.  The Appellant has a right to apply for permission to appeal against this decision pursuant to Rule 39 of the Rules.   The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

JOHN N. DENT

TRIBUNAL JUDGE

RELEASE DATE: 24 June 2009