First-tier Tribunal (Tax)

[2010] UKFTT 269 (TC)

TC00563

Appeal number: TC/2010/00307

Construction Industry Scheme – Appeal against cancellation of registration for gross payment – ‘Compliance test’ –  Whether there was a reasonable excuse – No  – Appeal dismissed – section 66 &  schedule 11 Finance Act 2004 – Regulation 32 Income Tax (Construction Industry Scheme) Regulations 2005

FIRST-TIER TRIBUNAL

TAX

                                            THOMAS POLLARD                           Appellant

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                                   REVENUE AND CUSTOMS               Respondents

TRIBUNAL: John Brooks (Judge)

                        Alan Redden (Member)                                                                                                       

Sitting in public at Keble House, Southernhay Gardens, Exeter on 23 March 2010

The Appellant in person

Colin Brown of HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

Introduction

1.       On 23 March 2010 we heard the appeal of Mr Thomas Pollard against the removal of his gross payment status within the Construction Industry Scheme (“CIS”).

2.       There was some confusion at the commencement of the hearing when Mr Pollard said that he understood that the matter had already been concluded as the General Commissioners sitting at Newton Abbott on 9 December 2008 had allowed his appeal against the removal of his gross payment status. However, after a short adjournment to ascertain the position it transpired that the hearing in Newton Abbot, although an appeal against the removal of gross payment status, concerned an earlier decision of HMRC following a review of a period ending in March 2008 whereas the present appeal is against the removal of gross payment status following a review for the period ending 13 March 2009. Having established that the matter had not been previously concluded we proceeded with the hearing.

3.       At the conclusion of the hearing we orally gave our decision to dismiss this appeal. Following receipt of the decision notice, which included summary findings of fact and reasons, Mr Pollard wrote to the Tribunal on 16 April 2010 stating that he wished to appeal against the Tribunal’s decision.

4.       Under Rule 35(4) of the Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009 (“the Rules”), it is made clear that if a Tribunal decision, as in this case, provides only summary findings and reasons, a party wishing to appeal must apply for full written findings and reasons for the decision before seeking permission to do so. Mr Pollard’s letter has therefore been treated as a request for full written findings of fact and reasons for the decision.

5.       This decision is provided in accordance with Rule 35 of the Rules, in order to enable Mr Pollard to decide whether to apply for permission to appeal against the decision of the Tribunal and to assist him in formulating any such appeal.

Facts

6.       Following a review of the period from 14 March 2008 to 13 March 2009 HMRC wrote to Mr Pollard on 16 March 2009 advising that his gross payment status would be cancelled as a result of late payments of tax under the PAYE regulations and self assessment. The late payments concerned were as follows:

PAYE               Due                  Paid

                        22/03/08           08/04/08           17 days late

                        22/05/08           14/06/08           23 days late

                        22/07/08           01/08/08           10 days late

                        22/08/08           05/09/08           14 days late

                        22/10/08           24/10/08           2 days late

                        22/11/08           26/10/08           4 days late

Self Assessment

2007-08 2^nd payment on account due 31/07/08 paid 24/10/08 85 days late

  balancing payment due 31/01/09 paid 26/02/09 26 days late

            2008-09 1^st payment on account due 31/01/09 paid 26/02/09 26 days late

7.       Mr Pollard fully accepts that he made these late payments but explained that all the PAYE payments and the first Self Assessment payment on account occurred prior to the hearing before the General Commissioners in Newton Abbott on 9 December 2008. He told us that he had not realised the effect that late payment of tax could have on his gross payment status until the appeal before the General Commissioners and that since then he has taken steps to ensure that any future liability would be met on time.

8.       He also explained that prior to the General Commissioners hearing he had relied on his wife to deal with his accounts and pay his bills. However, she suffered from depression and would hide bills and letters (such as from HMRC) and he would have to search, not always successfully, for these in order to respond.

Legislation

9.       An individual’s registration for gross payment status may be cancelled by HMRC at any time under section 66(1)(a) of the Finance Act 2004 (the “Act”) if it appears that “if an application to register the person for gross payment were to be made at that time” it would be refused.

10.    Section 63(2) of the Act provides that HMRC “must” register a person if satisfied that the requirements of section 64 of the Act are met. To meet these requirements, insofar as they are relevant to the present appeal, the conditions set out in Part 1 of schedule 11 to the Act must be satisfied (see section 64(2) of the Act).

11.    These conditions are the “business test”; the “turnover test”; and the “compliance test” set out in paragraphs 2, 3 and 4 of schedule 11 to the Act respectively. For the purposes of this appeal it is only necessary for us to consider the compliance test, which requires an individual to comply with his obligations under the tax legislation, as HMRC accept that Mr Pollard has satisfied the business and turnover tests.

12.    A person who has failed to comply with his tax obligations, for example by late payment of amounts due under the PAYE regulations, “is, in such circumstances as may be prescribed by the [Income Tax (Construction Industry Scheme) Regulations 2005], to be treated as satisfying” the test (see paragraph 4(3) of schedule 11 to the Act). In effect this allows one or two small delays in payment to be ignored and is not applicable in the present case

13.    An individual will also be treated as having satisfied the compliance test, in accordance with paragraphs 4(4) and (7) of schedule 11, if he can establish that he has a reasonable excuse for the failure to comply with his tax obligations, has complied with his obligations without unreasonable delay after the excuse ceased and can be expected to comply in respect of periods after the qualifying period which, in the present case, is the 12 months to 13 March 2009, the date of the review by HMRC of the Mr Pollard’s gross payment status (see paragraph 14 of schedule 11).

Discussion and Conclusion

14.    Given the nature and number of the late payments of tax Mr Pollard has failed the “compliance test” and cannot be treated as having satisfied it by virtue of the Income Tax (Construction Industry Scheme) Regulations 2005. As Mr Brown, for HMRC, accepts that Mr Pollard will comply with his future tax obligations the question for us is whether he has a reasonable excuse for these late payments throughout the period of default.

15.    There is no definition of “reasonable excuse” in the legislation which “is a matter to be considered in the light of all the circumstances of the particular case” (see Rowland v HMRC [2006] STC (SCD) 536 at [18]).

16.    Having carefully considered Mr Pollard’s circumstances, although we sympathise with him, we do not consider that it was reasonable for him to rely on his wife to deal with his tax affairs knowing that she suffered from depression and that she would hide bills and letters.

17.    We also find that Mr Pollard’s lack of knowledge of the effect of late payment of tax on his gross payment status until the hearing before the General Commissioners in December 2008 does not amount to a reasonable excuse for making late payments of tax.

18.     The appeal is therefore dismissed.

19.    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 BROOKS

TRIBUNAL JUDGE

RELEASE DATE: 14 June 2010