First-tier Tribunal (Tax)

[2010] UKFTT 252 (TC)

TC00547

Appeal ref: TC/2009/16261

CONSTRUCTION INDUSTRY GROSS PAYMENT STATUS – removal – whether Appellant had reasonable excuse for failure to meet compliance test – no – appeal dismissed

FIRST-TIER TRIBUNAL

TAX

                                                          SARAH GRAYSON                                         Appellant

- and -

                   HER MAJESTY’S REVENUE AND CUSTOMS        Respondents

Tribunal:        Lady Judith Mitting (Judge)

                        Timothy Ratcliffe (Member)

Sitting in public in Liverpool on 19 January 2010

Peter Stoney for the Appellant

Mrs. C Douglas instructed by the General Counsel and Solicitor to Her Majesty’s Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.           Mrs. Grayson was appealing against the cancellation of her Gross Payment Status.  We heard oral submissions from Mr. Stoney on behalf of Mrs. Grayson and from Mrs. Douglas on behalf of the Respondents.  We announced our decision and our reasoning to the parties at the time and both indicated their willingness that we should merely record these in short form summary, which we did.  Mrs. Grayson has now applied for a full reasoned decision which is set out below.

The statutory framework

2.           Part 1, Schedule 11 Finance Act 2004 sets out the conditions which are to be satisfied by an individual before he or she can be registered for gross payment.  Paragraphs 2 and 3 set out the business and turnover tests, both of which were satisfied by Mrs. Grayson.  Paragraph 4 sets out a compliance test, the following sub-paragraphs being the relevant ones here.  Paragraph 4(1) requires the individual to have complied with all his tax obligations during the qualifying period.  Sub-paragraph (4) provides that a person who has failed to comply with this obligation is nevertheless to be treated as satisfying the condition if the person had a reasonable excuse for the failure to comply and, if the excuse ceased, he complied with the obligation without unreasonable delay after the excuse had ceased.  Sub-paragraph (7) also provides that there must be “reason to expect” that the applicant will continue to comply in respect of periods after the qualifying period.

The evidence

3.           The qualifying period in respect of Mrs. Grayson was that dated 18 June 2008 to 18 June 2009.  The qualifying test failures are as follows:

(Period under review 18 June 2008 to 18 June 2009)

PAYE

Non SA Tax Debt

SA Tax Paid Late

Mrs. Grayson accepted the failures in respect of PAYE and the self-assessed tax but submitted that the interest payments had been made but had been mis-allocated by H M Revenue and Customs (HMRC).  We did not hear detailed evidence on this point because it was only one of the three areas of non-compliance and any one alone would have constituted a failure.  As all failures were outside the statutory tolerances and by notice dated 16 July 2009, HMRC withdrew Mrs. Grayson’s Gross Payment Status.  The withdrawal was upheld by HMRC on review.  Mr. Stoney made submissions on her behalf and we also had before us a full set of the correspondence passing between Mr. Stoney and HMRC.  It was the case for Mrs. Grayson that she had a reasonable excuse for the non-compliance and that there was no reason why she should fail to comply in the future.

4.           There had been non-compliance in the previous qualifying period (ending 18 June 2008) and HMRC had on that occasion also sought to remove her right to be paid without deduction.  On that occasion, by letter dated 16 October 2008, Mr. Stoney had contested the decision.  He cited the economic consequences for Mrs. Grayson, the loss of contracts from the Councils, who would only deal with you if you had the appropriate certificate; and that Mrs. Grayson’s bookkeeper had left suddenly and left her in the lurch and she had not been able to find a suitable replacement.  He went on to say that Mrs. Grayson would thenceforward be paying by BACS and payments would be on time.  HMRC on that occasion had, on review, reversed their decision and Mrs. Grayson kept her status.

5.           In respect of the failures in the current period under review, Mrs. Grayson’s case is set out in correspondence (in particular letters dated 30 July 2009 and 1 October 2009) and in the Notice of Appeal and in the oral submissions.  In respect of the PAYE failures, these payments were late because Mrs. Grayson was on holiday and again was having trouble with her bookkeeper.  Since October 2008, it was pointed out that all PAYE payments had been made on time.  In respect of the late payment of income tax, this was the tax that would have been based on the annual accounts for the year ended 31 July 2008.  It took a considerable length of time for these accounts to be completed and for the liability to be calculated because of the bookkeeper’s earlier failure to keep proper records.  The consequences of the removal of Mrs. Grayson’s Gross Payment Status would be serious.  There would be a loss of contracts as Councils would not deal with someone without the appropriate certificate.  Further the tax which would be deducted would be a considerable amount of money, which would have a serious knock-on effect to the bank balance and cash flow.  These problems might lead to the bank calling in the overdraft which would in effect cause the business to cease to trade.  The bookkeeper who caused all the problems has long since gone.  Mrs. Grayson now dealt with the accounts herself.  Mr Stoney stressed the good compliance record since July 2008, ie for the bulk of the period.

Conclusions

6.           We note that in respect of the earlier qualifying period, broadly similar reasons for the failures were put forward and HMRC’s decision was reversed.  We heard no further evidence in relation to that and do not know precisely what HMRC’s reasoning was.  However, the fact that that decision was reversed does not bind either HMRC or the tribunal to make a similar decision for the period currently under review.

7.           Looking first at paragraph 4(7), the “reason to expect” clause, Mr. Stoney’s assertion that since October 2008, Mrs. Grayson’s liabilities had all been paid on time and her tax affairs were up to date was not challenged by HMRC and we see no reason to doubt it.  Given this we see no reason to doubt that Mrs. Grayson would be able to comply with her obligations beyond the qualifying period and we accept that Mrs. Grayson did meet this condition.  However that alone is not enough.  As Park J held in paragraph 28 Revenue and Customs Commissioners v Facilities and Maintenance Engineering Ltd (2006) EWHC 689 (CH):

“However it is clear beyond doubt that to get the benefit of section 565(4) a company must satisfy both conditions of the subsection.  FAME in my definite opinion… did not satisfy the first condition (the minor and technical condition) so it does not assist the company that it did satisfy the second condition.”

Both conditions in paragraphs 4(1) and 4(7) have to be met.  Mrs. Grayson has therefore to be able to satisfy us that she had a reasonable excuse for her non-compliance.  The primary reason put forward for the non-compliance was the incompetence and failings of the bookkeeper.  We were given no real detail of her failings and were told merely that she was incompetent and that she left Mrs. Grayson in the lurch.  However, the problems must have been going on for some time to cause the non-compliance in both qualifying periods.  Equally the failures must have been quite serious to have caused such a delay in Mr. Stoney’s ability to complete the annual accounts for the year ended 31 March 2008.  The obligation to comply with one’s tax liabilities is obviously that of the tax payer.  Mrs. Grayson employed a bookkeeper; this bookkeeper was directly under the control of Mrs. Grayson and it was therefore incumbent upon Mrs. Grayson to be certain at all times that the bookkeeper was competent and was performing her duties efficiently and timeously.  Whether there was a failure by Mrs. Grayson to monitor the bookkeeper or Mrs. Grayson appreciated her failings and for whatever reason did not act, we do not know but the responsibility, as we say, remains with Mrs. Grayson.  She failed to exercise sufficient control of the bookkeeper.  Mr. Stoney also put forward as a reason in respect of the PAYE late payments that Mrs. Grayson was on holiday.  This certainly cannot constitute a reasonable excuse.  Before any trader goes on holiday it is incumbent upon them to ensure that whatever liabilities and obligations are going to occur during their absence are capable of being met in their absence.

8.           As we set out at the hearing and in our earlier summary, we had great sympathy with Mrs. Grayson and fully appreciate the possible consequences of a removal of her Gross Payment Status.  However this is not something that we can take into account.  We are not looking at the consequences of the removal of her status, but whether or not there is a reasonable excuse for the actions or failures which caused it to be removed.  As we have said before we see no reason to believe that there will be future default but this cannot take away the fact that there were failures within the qualifying period for which we find no reasonable excuse.  In short the compliance condition was breached.  For these reasons we have no alternative but to dismiss the appeal

The Appellant has a right to apply for permission to appeal against this decision in accordance with 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.

TC/2009/16261

LADY JUDITH MITTING

JUDGE
Release Date: 3 June 2010