First-tier Tribunal (Tax)

[2010] UKFTT 492 (TC)

TC00750

Appeal number: TC/2010/04215

CIS penalties for late return – whether reasonable excuse

FIRST-TIER TRIBUNAL

TAX

G. T. PLASTERERS Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

TRIBUNAL: Miss J. Blewitt (TRIBUNAL JUDGE) Mr R. J. Freeston (MEMBER)

The Tribunal determined the appeal on 12 August 2010 without a hearing under the provisions of Rule 26 of the Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009 (default paper cases) having first read the Notice of Appeal dated 7 May 2010,  HMRC’s Statement of Case submitted on 22 June 2010 and the Appellant’s submissions contained within previous correspondence

© CROWN COPYRIGHT 2010

DECISION

1.       This is an appeal against the imposition of 244 penalties imposed for the late submission of monthly construction industry scheme (“CIS”) contractor returns for the periods ending 5 October 2007 to 5 November 2009 inclusive totalling £27,000.

2.       HMRC accept in the Statement of Case that the Appellant’s contractor activity did not start until 6 October 2007 and accordingly cancelled the penalties initially imposed for the period ending 5 October 2007, which leaves 244 outstanding penalties against which the Appellant appeals. The Statement of Case highlights the fact that some penalties have been undercharged, however HMRC do not intend to pursue the additional sums as the undercharging arose as a result of HMRC’s internal system.

3.       The Appellant’s agent, Mr David Whittle of David Whittle & Co. Appealed by Notice dated 7 May 2010. The grounds of appeal state that the Appellant failed to register for the CIS Scheme until 20 August 2009 as a result of stress caused by the death of his business partner on 22 September 2007 and the problems and losses faced by the business. The Appellant received more than 50 penalty notices on the same day, as a result of which the Appellant contacted the tax office and submitted the required forms. The Appellant’s agent submits it is unreasonable for 50 penalty notices to be sent out on the same day. The Appellant, Mr Adrian Turner, adds to the grounds of appeal an apology for any mistake made and submits that there are mitigating circumstances bearing in mind the death of his business partner. The Appellant states that he telephoned the tax office after the death and explained that the business would continue to trade, but reducing the workforce and continuing to use some of the current employees and subcontractors. The Appellant states he was told to carry on as he had been doing and no mention was made of a new tax reference, although with hindsight the Appellant accepts he ought to have known better. The Appellant details the steps taken to address all outstanding matters after receiving the penalty notices. The Appellant queries why it took HMRC so long to realise that something was wrong and feels that the penalties are excessive, particularly as business has reduced in recent years.

4.       The Tribunal had the benefit of correspondence passing between the Appellant’s agent to HMRC dated 11 December 2009 in which the agent explained that the Appellant did not receive any CIS Monthly Returns until September and October 2009 after the Appellant’s visit to the tax office at Norwich and following receipt of the penalty notices. The Appellant’s agent expressed concern that HMRC did not notify the Appellant for almost 2 years that returns were outstanding, during which period the amount of the penalties was increasing. It was also highlighted that no tax is outstanding.

5.       Further correspondence from the Appellant’s agent to HMRC dated 18 February 2010 sets out background to the death of the Appellant’s business partner in 2007. The letter goes on to state that the Appellant believed he had done everything required by contacting the tax office, however the Appellant was not aware of the change in the CIS Scheme and consequently was not aware he had to register under a new scheme. Immediately following the receipt of penalty notices, the Appellant visited the tax office and was assisted by Ms Clutton, an officer of HMRC. The Appellant is now operating the scheme correctly but may face bankruptcy as a result of the penalties imposed.

6.       The Tribunal carefully considered all of the written submissions made by and on behalf of the Appellant. The Tribunal found that, although the Appellant is now operating the CIS scheme correctly and although the potential consequences of the penalties are severe, the effect of the penalties is not sufficient to amount to reasonable excuse for the significant delay in submitting the returns.

7.        The Tribunal was entirely sympathetic to the Appellant’s loss of his business partner, however given that the Appellant did not start contractor activity until October 2007 (some months after his partner ceased working due to ill health) the Tribunal found there was sufficient time for the Appellant to ensure that he was aware of all tax obligations by continuing the business as a sole trader and therefore there was no reasonable excuse for the late submission of monthly CIS returns for his failure.

8.       The Appellant’s agent submits that receipt of 50 penalties at the same time is unreasonable and HMRC took too long to realise that the Appellant should be making monthly returns. The Tribunal found that as the Appellant did not in fact register contractor activity with HMRC until late 2009, therefore HMRC were wholly unaware that monthly returns should be issued to the Appellant. The Tribunal found that no criticism could be levelled at HMRC for not issuing monthly returns in circumstances where HMRC could not reasonably be aware of the Appellant’s contractor activity. The obligation to register and file monthly returns remains with the taxpayer and is not absolved or extinguished on the basis of returns not being issued/received, even in circumstances where penalties have accrued (unknown to the Appellant) over a significant period of time.

9.       The Tribunal considered the submission that, following his partner’s death, the Appellant had been advised by HMRC to carry on as he had previously. The Tribunal found that in giving such indication, HMRC were not made aware of the Appellant’s circumstances. HMRC only became aware of the position at the date of his registration as a sole trader which did not occur until 22 October 2009. The Tribunal noted that the Appellant did not seek assistance as to obligations under the CIS scheme prior to August 2009, and that the Appellant accepts he was unaware of his obligations. The Tribunal did not find that the Appellant’s ignorance of his statutory obligations could amount to reasonable excuse.

10.    The Tribunal took into account the difficulties which the Appellant experienced from January 2007, when his partner ceased work, until his death in September 2007. The Tribunal accepted that the Appellant had assumed responsibility to manage trading activities in Suffolk and Norfolk as a result of his partner’s illness and that the company had suffered losses during that time. The Tribunal did not find the circumstances sufficient to amount to reasonable excuse for the late submission of the Appellants CIS returns as the relevant period for this appeal is 5 October 2007 to 5 November 2009, which postdates the period during which the Appellant’s partner was ill. The Tribunal accepted that the Appellant no doubt suffered stress as a result of his partner’s death and the consequential increase in his workload; nevertheless the Tribunal find that the responsibility to comply with all tax obligations remained with the Appellant irrespective of the stressful situation in which he found himself. The Appellant could have taken advice from accountants or directly from HMRC but does not explain why he did not do so.

11.    The Tribunal accepted that once aware of the penalties, the Appellant took immediate steps to rectify the situation; however the Tribunal did not find that this could amount to reasonable excuse for the late submission of the returns.

12.    The Tribunal dismissed the appeal and confirmed the penalties.

13.    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.

TRIBUNAL JUDGE

RELEASE DATE: 7 September 2010