[2010] UKFTT 31 (TC)

TC00345

Appeal number: TC/2009/13473

GROSS PAYMENT STATUS - Compliance test - Cancellation - non compliance by one of partners with personal tax liabilities - whether reasonable excuse - no. Whether notice of failures given sufficient - no, whether notice given with out delay - no. Appeal allowed

FIRST-TIER TRIBUNAL

TAX

                                      RADFORD AND ROBINSON                   Appellants

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                             REVENUE AND CUSTOMS (Tax)          Respondents

                                     TRIBUNAL:  Paulene Gandhi (Chair)

Andrew Perrin                                             

Sitting in public at the Employment Tribunal, Victory House on 23 November 2009

The Appellant was represented by Mrs Kelly, his agent

 Mr Lewis, Presenting Officer, appeared for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.   Having orally given our decision at the conclusion of the hearing to allow this appeal, Mr Lewis requested full written findings of fact and reasons for the decision. 

2.  Radford and Robinson are ceiling fixers.  They appeal against the withdrawal of gross payment status within the Construction Industry Scheme (CIS).

3.  The following facts are not in dispute:

The partnership did not comply with their obligations during the qualifying period 27 February 2008 to 27 February 2009. It was accepted that Mr Radford had met all his obligations but Mr Robinson had not.

The failures were as follows:

Late payment of interest due on 18 March 2008 of £106.49 and not paid until 10 December 2008

Second Self Assessment (SA) payment of £4530.29 due on 31 July 2008 and not paid until 24 March 2009.  

It was accepted that Mr Robinson had remedied the failures in full and that the next payments due on 31 July 2009 have been cleared in full by both partners.

4.    There were two questions for determination:

a)    Whether the respondents, when cancelling the partnership’s registration for gross payment, gave them notice without delay stating the reasons for the cancellation (see Section 66 (5) Finance Act 2004)

b)   If such notice was given whether the partnership had a reasonable excuse for the failures stated above and whether things were done promptly subsequently (see Finance Act 2004 Schedule 11 paragraph 4 (4)) and whether there is reason to expect future compliance on Radford and Robinson’s part (Schedule 11 paragraphs 10-12).

5.   Given our findings on the notification issue there was no need for us to consider whether there was a reasonable excuse.  However we set out our findings on this as this was the issue the parties argued before us.   It only became clear during the course of the hearing that notification was an issue.

Reasonable excuse

6.   The reason for the failures listed above as stated in the Notice of Appeal was that the partnership profits result in personal liabilities for each of the partners.  Mr Radford and Mr Robinson liaised individually with the respondents regarding their personal tax liabilities. Mr Robinson, the partner who does not deal with any of the business’s administrative functions, although deemed to know that personal tax payments would result in removal of the partnerships gross payment status did not in actual fact know.  He paid his tax liabilities in a number of instalments.  He did not appreciate that paying his tax in instalments would affect his CIS status and received no warnings from the respondents to this effect.  The partnership’s registering partner, Mr Radford, who deals with all the administration was unaware that payments were being made late by Mr Robinson and was not allowed to know because of Mr Robinson’s privacy rights until it was too late to do anything about it.  It is harsh to punish both partners particularly in the current economic climate. 

7.  The tribunal needs to consider whether these reasons amount to a reasonable excuse.  As set out in Stephen Mutch v HMRC [2009] UKFTT 288 (TC) this requires as an exercise of judgment, a consideration of what the reasonable competent business person (taken for comparison purposes) in a similar situation would have done. The assumed reasonable competent business person must be taken to have exercised reasonable foresight. Then the reasonable business person must be taken to have exercised due diligence and a proper regard for their tax obligations.

8.   As Mr Radford rightly accepts, for an individual to be registered for gross payment as a partner in a firm all the partners must have complied with their tax obligations including their personal tax obligations.  During the qualifying period 27/2/08-27/2/09 one partner, Mr Robinson, did not comply with his tax obligations as required under Schedule 11 of the Finance Act 2004.  The failures identified by the scheduled review did not fall under those which can be disregarded under Regulation 32 (statutory instrument 2005/2045) or Regulation 2 (statutory instrument 2008/1282).

9.   The tribunal is of the view that Mr Robinson not being aware of the impact of not paying his tax liabilities in full and on time cannot be deemed a reasonable excuse. The reasonable competent business person would have made sure they were aware of what their obligations were. As accepted by Mr Radford, ignorance of the law cannot amount to a reasonable excuse.  Further we cannot take into account the effect of the withdrawal of gross payment status on the partnership’s business following Barnes v Hilton Main Construction (2005) 77 TC 255 as none of these  matters were the causes of the late payments and therefore cannot amount to a reasonable excuse for the late payment. 

Notification of withdrawal of gross payment status

10.  The compliance test was carried out on 4 March 2009.  On 8 March 2009 the respondents wrote to the partnership to notify them of the withdrawal of the partnership from the CIS scheme. They stated the following:

‘You have not complied with your tax and national insurance contributions obligations under section 66 (1) Finance Act 2004.  As a result we are now unable to continue to allow you to be paid without deductions on account of tax and NICs’.

11. Mr Radford states that he had difficulty, from the above letter, in ascertaining why the default had taken place. On 24 March 2009 the partnership’s agents wrote to the respondents asking for more details.  The agents had tried finding out this information via phone but the respondents had refused to provide such information over the phone.   

12. In a letter dated 5 May 2009 the respondents stated that the partnership could not be registered for gross payment for the following reasons:

Non tax SA debts paid late

Interest from self assessment of £106.49 due on 18 March 2008 was not paid in full until 10 December 2008.

SA tax debts unpaid

The self assessment second payment on account of £4530.29 due on 31 July 2008 is still outstanding. The partnership has not complied with their tax and national insurance obligations under section 66 Finance Act 2004.  As a result HMRC are unable to continue to allow the partnership to be paid without deductions on account of tax and NIC

13. In the Tribunal’s view the letter of 8 March 2009 is in very general terms.    However the question for the tribunal is whether this constitutes sufficient notice for the purposes of Section 66 (5) Finance Act 2004. The second issue, if we find in the appellant’s favour on the first matter, is whether the notification of 5 May 2009 was given without delay.

14. In the tribunal’s view it has to be implicit in the legislation that a reasonable competent business person must be able to understand any reasons given without making further enquires.  The reasons given by the respondent in the first instance were not sufficiently detailed enough nor reasonably clear enough to be understood without making further enquires.  Further there was no reason why the respondents could not have supplied the information in their letter of 5 May 2009 on 8 March 2009. Thus the tribunal finds that notification of withdrawal from the Gross Payment Scheme was only given to the partnership by letter of 5 May 2009.

15. The tribunal also finds that informing the partnership on 5 May 2009 of the reasons why they were no longer entitled to gross payment status when the test was carried out on 4 March 2009 was not giving notification “without delay”.

16.  For the above reasons the tribunal allows the appeal.

Paulene Gandhi

Tribunal Judge

Release Date: 14 January 2010