First-tier Tribunal (Tax)

[2010] UKFTT 216 (TC)

TC00517

Appeal number: TC2009/12782

CIS penalty for late return – whether reasonable excuse – HMRC decision upheld

FIRST-TIER TRIBUNAL

TAX

                                     APEX DESIGN & BUILD LTD                    Appellant

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                                   REVENUE AND CUSTOMS               Respondents

TRIBUNAL: Michael S Connell         (Judge)

                 Mrs Gay Webb              (Member)

Sitting in public in Leeds on 15 January 2010

© CROWN COPYRIGHT 2010

DECISION

1.         This appeal was dealt without an oral hearing.  The Appellant was issued with a copy of HMRC’s statement of case which was filed with the Tribunal Service and, in accordance with rule 26, notified that it may lodge a reply with the Tribunal within 30 days.  The Appellant did not request an oral hearing of its appeal.  The Tribunal accordingly determined the appeal without a hearing under the provisions of rule 26 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.

2.         The appeal is against penalties imposed by HMRC for the late submission of monthly Construction Industry Scheme (CIS) returns for the months ended 05.08.07-05.03.09 inclusive; a total of 20 returns.

3.         Once a contractor employs sub-contractors within the CIS, there is a legal obligation to submit a monthly return from and including the initial date of engagement of a sub-contractor.  The return must be completed with details of payments made to each sub-contractor and must reach HMRC by 19^th of the month (the filing date) in which the return period ends.

4.         A contractor is expected to register with HMRC once they start to employ sub-contractors and this allows HMRC to issue the contractor with a return for each monthly period.  Return periods run from the 6^th of one month to the 5^th of the next.  If a return is received by HMRC after the 19^th of the month, it is treated as being late.  If a contractor has not paid any sub-contractors during the month, a ‘nil’ return is nonetheless required.  If a return is not received by the 19^th of the month, the contractor will be liable to a late return penalty for that period and any subsequent months or part of months the return is still not received.  Penalties are chargeable each month for each outstanding return at £100.00 per month per return.  If the return is still outstanding after the 13^th month the £100.00 late return filing penalties cease and a final late return penalty is issued.  The amount of the final late return penalty is based on the number of occasions within the 12 months prior that final late return penalties have been issued for other returns.  The number of occasions determines the amount of the next final late filing penalty.  On the first occasion the penalty is £300.00, on the second occasion £600.00 and on the third occasion £900.00, and so on.  Up to a maximum 12^th occasion the final late filing penalty attracts an amount of £3,000.00.

5.         This appeal concerns penalties for the late submission of monthly returns from July 2007 (relating to the month end 05.07.07) to March 2009 (relating to the month end 05.03.09) inclusive.  A total of 21 returns.  HMRC say that the July 2007 return is still outstanding as at the date of lodging its submissions.  The other 20 returns were filed on 28.05.09.

6.         The Appellant accepts that the penalty instances in relation to the late returns for the periods on or after 12.01.09 should stand but disputes the previous late return filing penalties (194 late return filing penalties of £100.00 and 11 final late return penalties).  This is because the Appellant says that he did not receive returns for filing from HMRC until January 2009.

7.         HMRC says that, from 06.04.07-05.09.07 on the introduction of the new CIS scheme as a matter of policy, it did not charge penalties for late monthly returns.  This period was known as the ‘soft landing period’.  However, from 19.10.07 penalties were charged for any late return still outstanding in respect of the months covered by the soft landing period together with penalties for return periods after 05.09.07.

8.         In the initial letter of appeal dated 23.02.09 the Appellant’s agent appealed against the late filing penalties on the grounds that their client had never received the returns.  The agent said that whenever their client had employed a sub-contractor they had always deducted CIS tax and forwarded it to HMRC.  There was therefore no loss of tax to HMRC.

9.         Apex Design & Build Limited have traded within the new CIS scheme since July 2007.  However, the company did not register with HMRC until 10.12.08.  HMRC began issuing returns for filing on 06.01.09.  The issue of contractor monthly returns is an automated process.  Returns are issued on or before the 29^th of the month.  They are produced to ensure that contractors receive the return on or before the 5^th of the following month in order that they can be filed on the 19^th of that month.

10.       HMRC say that 1 return (for July 2007) was still outstanding at the date of their submissions but at that stage the taxpayer had not employed any sub-contractors and of course had not registered with HMRC for the CIS scheme.

11.       A full list of the penalties was reproduced in the submission papers.  The total amount of penalties less those accepted by the Appellant amounted to £36,500.00.

12.       The legal authority for the imposition of penalties is regulation 4(13) of the Income Tax (Construction Industry Scheme) Regulations 2005.  Section 98A(2)(a) of the Taxes Management Act 1970 provides for penalties to be charged where a contractor fails to submit a return by the due date.  Section 100 of the TMA1970 allows an authorised officer of HMRC to determine penalties under the Taxes Acts.

13.       Section 118(2) of the Taxes Management Act provides that, where a person had a reasonable excuse for not doing anything required to be done, he should be deemed not to have failed to do it if he did it without unreasonable delay after the excuse ceased.

14.       There is no provision in law for the penalties imposed to be set aside or mitigated on any grounds other than reasonable excuse for each penalty, which must have existed for the whole period of each default.

15.       From the facts of this matter it would appear that the Appellant waited 16 months to inform HMRC that sub-contractors were being employed within the CIS scheme.  The Appellant’s inaction resulted in 18 returns not being issued by HMRC until 29.12.08.

16.       The Appellant then filed 20 returns but not until 28.05.09 and, according to HMRC, the return for the period July 2007 was still outstanding.

17.       ‘Reasonable excuse’ is not defined by legislation but it can be considered to be an exceptional event beyond the taxpayer’s control which prevented the returns being filed by the due date - for example, because of severe illness or bereavement.  No such excuse was proffered by the Appellant or his agent other than the fact that returns had not been sent to it by HMRC for filing.

18.       Proportionality may be an issue which can be considered by the Tribunal, particularly in cases where there is no revenue lost to HMRC and there are genuine and pressing reasons why returns have not been filed.  There were however no such grounds apparent from the Appellant’s notice of appeal.

19.       It was the taxpayer’s obligation to ensure that returns for each monthly period, from and including the initial date of engagement of sub-contractors (in this case August 2007) where delivered to HMRC within the relevant time period.  It was the taxpayer’s obligation to register with HMRC as a contractor within the Construction Industry Scheme.  The taxpayer did not register until 10 December 2008.

20.       Late return filing penalties and final late filing return penalties were however to be recalculated from September 2007, being the first monthly return period following the initial date of engagement of sub-contractors following commencement of trading in July 2007.  Subject to that, the late filing penalties as detailed in HMRC’s submissions were confirmed by the Tribunal to have been properly imposed and the appeal was dismissed.

21.       Having read the written submissions on behalf of the Appellant and the Respondent, the appeal was dismissed and the penalty determinations upheld

22.       The Appellant has a right to apply for permission to appeal against this decision. 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.

TRIBUNAL JUDGE

RELEASE DATE: 13 May 2010