First-tier Tribunal (Tax)

[2010] UKFTT 251 (TC)

                                                                

                          TC00546

 

            Appeal number: TC/2009/16915

 

Income Tax: Construction Industry Scheme – appeal against removal of gross payment status– no reasonable excuse – Appeal dismissed.

 

 

FIRST-TIER TRIBUNAL

 

TAX

 

 

 

                                              STEWART GETTY                             Appellant

 

 

                                                                      - and -

 

 

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                    REVENUE AND CUSTOMS (INCOME TAX) Respondents

 

 

 

 

TRIBUNAL JUDGE:            John M Barton, WS

 

 

 

Sitting in public at Riverside House, 502 Gorgie Road, Edinburgh on Wednesday 28 April 2010

 

 

Roddie Macleod, Morton Fraser, Solicitors, for the Appellant

 

Chris Cowan, HMRC, for the Respondents

 

 

© CROWN COPYRIGHT 2010

DECISION

 

1.       This is an appeal by Mr Stewart Getty (“Mr Getty”), a subcontractor within the Construction Industry Scheme against a decision by HMRC to cancel his registration for gross payment status.

2.       The appeal was heard at Riverside House, 502 Gorgie Road, Edinburgh on 28 April 2010.  Mr Getty was represented by Mr Roddie Macleod of Morton Fraser, Solicitors, Edinburgh.  HMRC was represented by Ms Chris Cowan, HM Inspector of Taxes.  The Tribunal heard the evidence of Mr Getty.

3.       The following productions were before the Tribunal –

(1)        For Mr Getty

(a)  Letter from Ian MacFarlane & Co to Mr Getty dated 17 April 2010.

(b)  Letter from Mountain Enterprises dated 19 April 2010.

(c) Three cheque stubs all dated 3 December 2008.

(d)  Bank Statement for Mr Getty trading as S G Plumbing and Heating for December 2008.

(e)  Letter from HMRC to Mr Getty dated 26 April 2009.

(f)   Letter from HMRC to Ian MacFarlane & Co dated 17 November 2009.

        (2)     For HMRC

(a)        Self Assessment statement dated 17 June 2008.

(b)        Self Assessment enquiry record.

(c)        Self Assessment amendment.

(d)        Allocation of payment received 18 July 2008.

(e)        Allocation of payment received 10 September 2008.

(f)         Tax treatment Qualification Test 14 July 2008.

(g)        Decision under appeal.

(h)        Letter of Appeal dated 9 June 2009.

(i)         Notice of Appeal dated 30 November 2009.

(j)         HMRC correspondence.

(k)        HMRC Internal Guidance Notes.

Material Facts

4.       The material facts are as follows –

5.       Mr Getty is a plumbing and heating engineer.   His principal customer is the Viewpoint Housing Association (“Viewpoint”), which accounts for 99% of his work.  In 2009, Mr Getty formed a limited company and that company now has five employees, including Mr Getty and his wife. Around 2005, Viewpoint requested that Mr Getty apply for gross payment status.   Viewpoint is presently cutting back, and Mr Getty is apprehensive that he may lose his work with Viewpoint if his gross payment certificate is withdrawn.   If that happened, Mr Getty would have to terminate the employment of his staff and effectively re-start his business.

6.       When Mr Getty commenced business on his own account, he engaged a bookeeper Andy Hendry of Mountain Enterprises, a former Inland Revenue employee, to attend to his tax compliance.    Whenever Mr Hendry said that tax was payable, Mr Getty would give him a cheque to be forwarded to HMRC.  When Mr Getty gave Mr Hendry a cheque for £4,496.60 in respect of tax due on 31 July 2008, Mr Getty was unaware that late payment interest of £88.73 and a balancing payment of £40.10 had been outstanding since 31 January 2008.  HMRC allocated the payment of £4,496.60 firstly by clearing the outstanding sums of £88.73 and £40.10 leaving a shortfall of £128.83 in the tax due on 31 July 2008.   This balance of £128.40 was not paid by Mr Getty until 10 September 2008.

7.       Mr Getty had an arrangement with Mr Hendry whereby he provided Mr Hendry with signed cheques to cover his monthly PAYE and National Insurance remittance.   Each month, Mr Hendry would calculate the liability, enter the amount in Mr Getty’s cheque and send it away, and he would telephone Mr Getty with the amount so that Mr Getty could enter the amount in the cheque stub.

8.       In 2008, Mr Getty’s business was increasing with a new gas servicing contract for Viewpoint; and Mr Hendry advised Mr Getty to form a limited company.   Mr Hendry informed Mr Getty that he was unable to prepare accounts for a limited company; and in October 2008, Mr Getty approached Mr Ian Macfarlane CA of Ian Macfarlane & Co.   Mr Getty informed Mr Hendry of this change, but asked Mr Hendry to continue attending to his monthly return until December 2008. However, Mr Hendry resolved not to continue, and sent back the signed cheques to Mr Getty along with other papers.   Mr Getty did not observe the cheques among the other papers, and it was not until 3 December 2008 that he became aware that the remittance due on 19 October 2008 was still outstanding.   He made out a cheque for the outstanding sum of £1,575.56 (of which the PAYE element was £1,097.45).  This cheque was received by HMRC on 6 December 2008.  At the same time, Mr Getty sent off a further cheque for £1731.50 for the amount due on 19 November 2008.

9.       Mr Getty had a meeting with an associate in Ian Macfarlane & Co and arranged that he would take over Mr Getty’s payroll and attend to his monthly PAYE and National Insurance return.   Mr Getty was informed that Ian Macfarlane & Co did not wish to hold signed cheques.   On or about 5 February 2009, Mr Getty became aware that the PAYE payment due on 19 January 2009 was still outstanding.   Mr Getty contacted Ian Macfarlane & Co and ascertained that there had been a failure within their office.  The payment (which included PAYE of £1,515.76) was received by HMRC on 27 February 2009.

10.   On 14 April 2009, HMRC carried out a scheduled review of Mr Getty’s compliance history, covering the period from 9 April 2008 to 9 April 2009.  This review disclosed three failures, namely -

2008/2009 Self Assessment payment on account due 31 July 2008 not paid in full till 10 September 2008 (41 days late)

PAYE due for month 6 due on 22 October 2008 paid 6 December 2008 - £1097.75 (45 days late)

PAYE due for month 9 due on 22 January 2009 paid 27 February 2009 £1515.76 (36 days late)

These failures resulted in HMRCs decision to remove Mr Getty's gross payment status.  A letter advising Mr Getty of the decision to withdraw his gross payment status was issued on 26 April 2009.

 

Statutes

 

11.  Under the heading “Cancellation of registration for gross payment”, s 66(1) of Finance Act 2004 provides that

(1)       The Board of Inland Revenue may at any time make a determination cancelling a person's registration for gross payment if it appears to them that­

(a) if an application to register the person for gross payment were to be made at that time, the Board would refuse so to register him.

 

12.  Section 67 of the said Act contains the provision for a person to appeal against a cancellation of his registration for gross payment.

 

13.  Schedule 11 of the said Act sets out the conditions for registration for gross payment and under the heading of “the compliance test”, it is provided that

4(1) The applicant must, subject to sub-paragraphs (3) and (4), have complied with­

(a) all obligations imposed on him in the qualifying period by or under the Tax Acts or the Taxes Management Act 1970, and

(b) all requests made in the qualifying period to supply to the Inland Revenue accounts of, or other information about, any business of his.

……………….

4(3) An applicant or company that has failed to comply with such an obligation or request as­

 

(a) is referred to in sub-paragraph (1), and

(b)            is of a kind prescribed by regulations made by the Board of Inland Revenue,

is, in such circumstances as may be prescribed by the regulations, to be treated as satisfying the condition in that sub-paragraph as regards that obligation or request.

4(4) An applicant or company that has failed to comply with such an obligation or request as is referred to in sub-paragraph (1) is to be treated as satisfying the condition in that sub-paragraph as regards that obligation or request if the Board of Inland Revenue are of the opinion that­

 

(a) the applicant or company had a reasonable excuse for the failure to comply, and

(b)            if the excuse ceased, he or it complied with the obligation or request without unreasonable delay after the excuse had ceased.

 

Prior authorities

14.   Reference was made to the following authorities:-

       For Mr Getty

Stephen Mutch v HMRC [2009] UK FTT 288 (TC)

Cormac Construction Ltd v HMRC [2009] UK FTT 380 (TC)

Radford and Robinson v HMRC [2010] UK FTT 31 (TC)

Terence Bruns trading as T K Fabrications v HMRC [2010] UK FTT 58 (TC)

(1)        For HMRC

Jeffers v HMRC [2010) UK FTT 22 (TC)

Ductaire Fabrications Ltd v HMRC [2009] UK FTT 3580 (TC)

 

Submissions

15.    Mr Macleod pointed out that if the whole of the payment of £4,496.60 had been allocated to the Self Assessment liability due on 31 July 2008, there would have been no failure within the compliance period as the sums of £88.73 and £40.10 had become due prior to that period.   Mr Getty had not been aware that the earlier amounts were still outstanding.

16.    With reference to the second failure, Mr Macleod referred to the decisions of First Tier Tribunals in Mutch v HMRC and Radford and Robinson v HMRC in relation to what might be a reasonable excuse.    In each case, the consideration was of what a reasonable competent business person would have done in a similar situation.   Such person is to be taken as having exercised reasonable foresight, and then to have exercised due diligence and proper regard for their tax obligations. 

17.    The same test also applies to the third failure.   There had been a change of accountant and the failure arose because the matter had not been attended to timeously by a member of the accountant’s staff.   It was significant that Mr Getty had been pro active in ascertaining the failure.    In Jeffers v HMRC Sir Stephen Oliver had acknowledged at paragraph 17 that the failure of an agent might amount to a “reasonable excuse” provided that the matter must have been outwith the control of the taxpayer and his agent or that it could not reasonably have been foreseen.

18.    In relation to matters as a whole, Mr Macleod also referred to the concluding observations in Terence Bruns trading as T K Fabrications v HMRC at paragraph 32 to the effect that there might be a reasonable excuse if the consequences of the withdrawal of gross payment status would be wholly disproportionate to late payment of tax.

Ms Cowan pointed out that each of the failures related to amounts of tax in excess of £100, and therefore none of the failures could be regarded as “minor and technical”.   In relation to the self assessment tax, she observed that in allocating a payment, it was normal practice to credit the oldest liability first.  The payment was eventually made after more than 28 days, and that in itself constituted grounds for withdrawing gross payment status.   The delay in the particular PAYE payments also constituted grounds for withdrawal as each were both paid after more than 14 days.  Ms Cowan refuted the claim that there had been reasonable excuse, and she referred to the commentary in Ductaire Fabrications Ltd v HMRC Commissioners at paragraph 18 where it is stated –

...the purpose which Parliament had in mind was to procure strict compliance with tax obligations by making such compliance the price of obtaining a certificate.

 

Reasons

 

19.  The material facts were not in dispute and the question before the Tribunal was whether HMRC had grounds for removing Mr Getty’s registration for gross payment status.

 

20.  The compliance period under review was from 9 April 2008 to 9 April 2009.  Prior to the earlier date, HMRC had raised two assessments for a total of £128.83.   This liability had been overlooked by Mr Getty and his then agent.   Mr Getty’s evidence, which was accepted by the Tribunal, was that he paid any outstanding tax immediately.    It was apparent that when Mr Getty had been asked by his agent to pay a sum of £4,496.60 representing his 2008/2009 Self Assessment payment on account due on 31 July 2008, he made out a cheque for that amount, unaware that there was an earlier liability.       It is appreciated that if HMRC had credited the whole of the £4,496.60 to the payment to the 2008/2009 liability, there would have been no shortfall within the compliance period.    However, HMRC followed the normal practice of first crediting £128.83 to the earlier liability.   The Tribunal does not consider that HMRC were under any duty to consult with Mr Getty or his agent before allocating this payment, and it follows that there was therefore a shortfall within the compliance period.

 

21.  However, the Tribunal has taken into account that Mr Getty was in the practice of paying any tax as soon as he was notified of it by his agent, and that the earlier liability had been apparently overlooked, and in these circumstances, find that these was a “reasonable excuse” such as to satisfy paragraph 4(4) of Schedule 11 to the Finance Act 2004.

 

22.  Mr Getty’s failure to make his monthly PAYE payment for October 2008 was clearly the direct result of commencing to change his agent in that he had left his instructions for completing his monthly PAYE/National Insurance return with his former agent, and he had not observed that his unused signed cheques had been included among other papers which had been sent to him by that agent. In considering whether there was a reasonable excuse in regard to this item, the Tribunal         accepts the standard of the “reasonable competent business person”.    However, it has to be taken into account that Mr Getty and his agent had adopted a practice whereby Mr Getty provided his agent with a number of signed cheques to be used by the agent for making remittances to HMRC.    Undoubtedly this was a practical arrangement, and Mr Getty received a telephone call each month with the amount to be inserted in the cheque stub; but the Tribunal does not accept that this is a practice to be associated with the reasonable competent business person, and furthermore, Mr Getty was not alerted by the absence of a telephone call.    The Tribunal therefore does not find that Mr Getty had a reasonable excuse for this failure.

 

23.  The immediate cause of the failure to make the payment due in January 2009 was attributed to staff within his new agents. These agents had declined to continue the arrangement for using signed cheques, and Mr Getty would therefore be asked for a cheque each month.  It is significant that Mr Getty made his November PAYE/National Insurance payment at the same time as his outstanding October payment – indicating his awareness of his responsibility for these payments.  He ought therefore to have been reasonably alert to the absence of any request in January 2009.   Mr Getty must accordingly accept a considerable degree of responsibility for this further failure to make a timeous payment of PAYE, and again the Tribunal finds that Mr Getty did not have a reasonable excuse for this further failure. 

 

24.  The Tribunal has taken into consideration that the cancellation of Mr Getty’s registration for gross payment status may result in his losing the Viewpoint contract, and therefore have a significant effect on his business.   However it has to be taken into account that there was a material lack of awareness on the part of Mr Getty in regard to his obligation to make his monthly PAYE payment timeously.

25.  For these reasons, the Tribunal finds that HMRC acted in accordance with the provisions of s66 of the Finance Act 2004 in cancelling Mr Getty’s registration for gross payment status, and the appeal is accordingly refused.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.  The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  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 M BARTON, WS

TRIBUNAL JUDGE

 

RELEASE DATE: 2 June 2010