First-tier Tribunal (Tax)

[2009] UKFTT 390 (TC)

TC00349              

 Appeal number:  TC/2009/12719

Tax : Construction Industry Scheme – failure to lodge monthly returns – penalties – no reasonable excuse – level of penalty  - Appeal allowed in part.

FIRST-TIER TRIBUNAL

TAX

                             BELLS MILLS DEVELOPMENTS LTD          Appellants

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                             REVENUE AND CUSTOMS (TAX)         Respondents

TRIBUNAL:              John M Barton, WS (Judge)

                                    Peter R Sheppard (Member)

Sitting in public in Edinburgh on Friday 4 December 2009

J G Morton CA, for the Appellants

Mrs Chris Cowan, HM Inspector of Taxes, for the Respondents

© CROWN COPYRIGHT 2009

DECISION

1   205 separate penalties totalling £41,900 had been imposed on Bells Mills Developments Ltd (“the Appellants”) in respect of their failure to lodge 22 consecutive monthly returns under the provisions of the Income Tax (Construction Industry Scheme) Regulations 2005 (“CIS Regulations”).

2   The Tribunal upheld 194 penalties each of £100 imposed under s 98A(2)(a) and s 98A(3)(a) of the Taxes Management Act 1970 (“TMA”) and modified to £100 each, the remaining 11 penalties imposed under s 98A(2)(b)(ii) of TMA.

Summary of facts

3   The Appellants commenced a speculative residential development early in 2007, employing Carillion Construction Ltd to carry out the construction work.

4   Regulation 4(1) of the CIS Regulations, which came into effect on 6 April 2007, requires that where contract payments are made, the contractor shall submit returns not later than 14 days after the end of every tax month. Nil returns are required.

5   On 16 March 2009, the Appellants disclosed to the Respondents (“HMRC”) that they had failed to lodge any returns for the months ending 5 May 2007 to 5 February 2009 inclusive.      

6   The outstanding returns were all submitted on 16 April 2009. 

Reasons

7   The material facts were not in dispute.

8   At the hearing, the Tribunal was informed that the project for which the Appellants were formed, was a joint venture by three experienced development companies, one of which, EDI Ltd, was to be responsible for the administration of the same.

9   During 2006, there were major changes in the financial management of EDI Ltd.     A part qualified accountant became responsible for returns under the CIS Scheme.   He failed to lodge a monthly return in respect of the payments to Carillion Construction Ltd.   When that employee left in early 2008, the responsibility for the Appellants’ monthly return was not specifically allocated to another employee and the omission only came to the notice of the Finance Director of EDI Ltd on 13 March 2009.  He immediately telephoned HMRC and followed up the call with the letter of 16 March 2009.

10  Carillion Construction Ltd had gross payment status under the CIS Scheme, and accordingly the Appellants had not been under any obligation to deduct any tax from the payments made to Carillion Construction Ltd.    There was no loss of tax to HMRC as a result of the Appellants’ failure to lodge said monthly returns.

11   Section 118(2) of TMA provides that

          “... where a person had a reasonable excuse for not doing anything required to be done he shall be deemed not to have failed to do it unless the excuse ceased and, after the excuse ceased, he shall be deemed not to have failed to do it if he did it without unreasonable delay after the excuse had ceased.”        

12   The Tribunal has taken into consideration the staff difficulties within EDI Ltd, the fact that only one payment was being made each month, that the omission did not result in any tax being lost to HMRC and that the failure was disclosed as soon as it became apparent.  It was also noted that the Appellants were under financial pressure in that they had only sold 11 of the 24 units within the development.      However, the Tribunal does not find that any or all of these circumstances constitute a reasonable excuse for the purposes of s 118(2) TMA.

13   In these circumstances, the Tribunal has no discretion in regard to the 194 separate penalties each of £100 imposed under s 98A(2)(a) and s 98A(3)(a) of TMA and those penalties therefore stand. 

14   Where a failure continues beyond 12 months, s 98A(2)(b) of TMA provides for a penalty “not exceeding” £3,000.

15   In this case, HMRC had imposed one penalty of £300, one penalty of £600, one penalty of £900, one penalty of £1,200, one penalty of £1,500, and five penalties each of £3,000.  

16   Having regard to the aggregate of the penalties exigible under s 98A(2)(a) and s 98A(3)(a), the Tribunal considered the further penalties totalling £19,500 to be excessive, particularly as the circumstances related to a single series of returns involving only one contractor and where no tax had been lost.   Nevertheless it requires to be recognised that in relation to 11 returns, the failure had continued for more than 12 months; and a penalty of £100 has therefore been determined for each of those returns.

MR JOHN M BARTON, WS

TRIBUNAL JUDGE

RELEASE DATE: 16 December 2009