First-tier Tribunal (Tax)

[2010] UKFTT 570 (TC)

TC00821

Appeal number: TC/2009/15348

Construction Industry Scheme- withdrawal of gross payment status- no reasonable excuse for compliance failures- appeal dismissed

FIRST-TIER TRIBUNAL

TAX

                                       STEVE JORDAN FENCING                      Appellant

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                                   REVENUE AND CUSTOMS               Respondents

TRIBUNAL: CHARLES HELLIER (Judge)

JULIAN STAFFORD (Member)

Sitting in public in Norwich on 8 June 2010

JEC Potter of J Potter Ltd for the Appellant

Mrs Ratnett for  HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.     This is the decision of the tribunal in this appeal. This document incorporates material which was contained in a direction made by the tribunal after an oral hearing. It sets out the decision of the tribunal after consideration of additional evidence sent to the tribunal by the appellant after that hearing. 

2.     Mr Jordan appeals against a determination by HMRC made on, and communicated in a letter of, 12 May 2009 withdrawing his gross payment status under the construction industry scheme.

The statutory provisions

3.     We describe here the relevant provisions of the construction industry scheme and also the provisions of the Taxes Management Act 1970 relating to the obligations to pay income tax.

4.     Under the construction industry scheme provisions in sections 57 to 70 Finance Act 2004, a contractor making payments to a sub-contractor must deduct tax on making the payment unless the sub-contractor is registered for gross payment. A person may apply for such registration which is granted if conditions in schedule 11 to that Act are satisfied.

5.     Section 66 (1) Finance act 2004 provides that HMRC may at any time make a determination cancelling a person's registration for gross payment "if it appears to them that if an application to register for gross payment were made at that time, the board would refuse so to register him.". Section 66 (5) provides that on "making such a determination the board must without delay give the person notice stating the reasons for the cancellation".

6.     Section 64 sets out the requirements to be satisfied before an individual may be registered for gross payment under the scheme. It provides that an individual, such as the Appellant, must satisfy the conditions in Part 1 of schedule 11 to the Act. The conditions in that Part include, in paragraph 4, a compliance test, namely that the individual has complied with all obligations imposed upon him by the Tax Acts, and the Taxes Management Act 1970. Subparagraph 4 (4) provides that, notwithstanding a failure to comply, an individual is to be treated as having complied if he had a reasonable excuse for his failure, and if the excuse ceased, he complied with the obligation without unreasonable delay after the excuse had ceased. Subparagraph 4(7) imposes a further condition, namely that there must be reason to expect that the individual will comply in future with those obligations.

7.     Regulations made under the Act (SI 2005/2045 as amended) also provide for certain failures to be ignored: regulation 32 provides in particular for a failure to pay income tax to be ignored if payment is made within 28 days of the due date, and the applicant had not otherwise failed to comply with the obligation within the preceding 12 months.

8.     Section 59A TMA provides for the making of payments on account of income tax for a year where in the previous year the individual had a residual liability to pay income tax. Two payments are required: one on 31 January in the year, and the next on 31 July, each of half of the amount of the assessed residual tax for the prior year. A taxpayer may claim a reduction in these payments, and if he does subsection (4) provides that the payments required of him "shall be, and shall be deemed always to have been equal to 50% of" the amount stated in his claim.

9.     Section 59B TMA provides for the payment of the balance of any tax due for a year: the amount of tax disclosed by his self assessment less the amount of any payments on account made under section 59A and less the amount of any tax deducted at source, is payable on or before 31 January next following the year of assessment (or in some cases not relevant to this appeal, later).

HMRC's determination

10.   In their letter of 12 May 2009 HMRC set out the reasons for their decision under the heading "Compliance failures":

(1)  the self-assessment balancing charge [for 2008] of £5,323.44 due on 31 January 2009 was not paid until 23 April 2009 [82 days late].

(2)  The first payment on account [for 2009] of £4,750 due on 31 January 2009 was not paid until 23 April 2009 [82 days late].

(3)  The second payment on account [for 2008] of £3,984.45 due on 31 July 2008 was not paid in full until 23 April 2009.

11.  In her skeleton argument Mrs Ratnett deals with (3) above in more detail and slightly differently. A claim was made by the Appellant in February 2008 to reduce his 2008 payments on account to £3,000 each. Thus the second payment due was £3,000 on 31 July 2008. The difference was £984.45. In her skeleton argument she describes the default as late payments of:

£3,000 due on 31 July 2008 paid on 10 September 2008, and

£984.45 due on 31 July 2008 paid on 23 April 2008.

Thus she ascribes 41 days delay to the first of these payments and 266 days to the second.

The Appellant’s arguments

12.  Mr Potter accepted that the payments had been made on the dates described but argued: (1) that the Appellant had reasonable excuses for its late payments in particular because the Appellant had sent a cheque on 29 January 2009 in respect of the amount due on 31 January which did not seem to have been received by HMRC, (2) that because of steps taken by the Appellant it could reasonably be expected that he would comply in future; and (3) that the tribunal should take into account the seriousness of the effect of withdrawal of gross payment status on the Appellant's business.

The compliance failures

13.  In this section we address whether, absent any finding of reasonable excuse, there were compliance failures. We use the enumeration in paragraph 9 above.

14.  Number (1). There was in our judgement a failure to make the balancing payment for 2008 on time. By section 59B it was due to be paid on 31 January 2009. It was paid later. The delay was not less than 28 days and so did not fall to be left out of account under regulation 32. (For reasons we set out below it seems to us that the balancing payment was not £5,323.44 but £5,323.44 + £984.45 because the £984.45 was properly to be treated as part of the balance due. That however does not affect the conclusion that the balancing payment was paid late.)

15.  Number (2). There was a failure to make this payment on time. It was, by section 59A, due to be made on 31 January and was made more than 28 days later. It did not fall to be left out of account under regulation 32.

16.  Number (3). As a result of the Appellant’s claim to reduce payments on account the amount due on 31 July 2009 was, by section 59A, £3,000. This amount was not paid until 10 September 2009. The delay was greater than 28 days and did not fall to be left out of account under regulation 32. The remainder of the alleged default relates to the £984.45. Because of the claim to reduce payments on account, this amount was not due on 31 July. Instead it was due (as a result of section 59B(1)) on 31 January 2009 as part of the difference between the total tax due for the year and the payments on account required by section 59A after the Appellant’s claim to adjust those payments. It was paid on 23 April. The delay was thus 82 days which meant that it too did not fall to be left out of account under regulation 32.

Discussion

(A) The missing cheque

17.  In correspondence with HMRC it was asserted on behalf of the Appellant that the failures Numbers (1) , (2)  and in relation to £984.45 of Number (3), arose because the Appellant had sent a cheque to HMRC on 29 January 2009 which did not appear to have been received or encashed. It was said that the cheque had later been stopped.

18.  Mrs Ratnett pointed out that a self assessment statement was sent to Mr Jordan on 5 March 2009 showing outstanding liabilities and not showing the receipt of the cheque of 29 January. She says that even if the cheque had been sent as alleged, and even if the dispatch of that cheque was a reasonable excuse for a failure to make payments on time, that excuse ceased when Mr Jordan received the statement because then he could see that the tax had not been paid. Eventually it was only in April 2009, after the receipt of a surcharge notice for a failure to pay on time that Mr Jordan made payment.

19.  The Appellant adduced no evidence at the hearing of the completion or dispatch of the cheque on 29 January other than Mr Jordan's assertion that such was the case.

20.  Following the hearing we concluded that,  if a cheque had been dispatched on 29 January 2009 to meet his liabilities than the Appellant would have had a reasonable excuse for the failure to make the associated payments on time. In our view that excuse would have continued until the receipt of the notice of surcharge in April 2009. In our view the payment made by the Appellant on 23 April 2009 was made without unreasonable delay after the receipt of that notice. We did not regard the receipt of the self assessment statement as bringing the period of the reasonable excuse to an end. We find those statements difficult to understand and on balance do not find that Mr Jordan's failure to consider it assiduously meant that he should be treated as ceasing to have a reasonable excuse from the time he received it.

21.  Thus if the cheque had been sent on 29 January 2009 we decided that we would find that the Appellant had a reasonable excuse for the associated failures and that those failures should be ignored under paragraph 4(4) Schedule 11. But the evidence before us was insufficient to determine whether or not the cheque had been dispatched. Normally the onus is on the Appellant to produce to the tribunal at the hearing evidence to prove the assertions it makes: for some reason the Appellant’s representative seemed to have forgotten the need to produce evidence to prove that there was a reasonable excuse and concentrated principally on submissions relating to the test in paragraph 4(7) and the effect of withdrawal of gross payment status on the Appellant’s business. However good those submissions this ignored the fact that unless there was a reasonable excuse for the defaults the Appellant could not succeed in the appeal. We therefore directed that The Appellant should on or before 30 June 2010 send to the tribunal:

(a)   cheque book stubs showing the stub for the 29 January cheque;

(b)  bank statements for the account on which the cheque was written for the period January to April 2009;

(c)   copies of correspondence with his bank in relation to the stopping of that cheque;

(d)  copies of correspondence with his accountants in January and February 2009 relating to the return for 2008 and the 29 January payment;

(e)   any other evidence he wished to rely on in relation to the cheque.

22.  The Appellant provided the items in (a) and (b) to the tribunal. He indicated that copies of correspondence with his bank were no longer available. No other evidence was provided in response to this direction.

23.  The bank statements indicated that the Appellant had sufficient funds at the end of January to pay the tax due. They did not support any contention that the tax had not been paid because he had insufficient funds.

24.  The cheque stub showed that the number of the cheque for the tax was 04230. No cheques with numbers close to this number had been debited to the bank account in January or February. But on 10 and 11 March a number of cheques were debited whose numbers comprised a sequence encompassing, but omitting 4230. This gave rise to the possibility that cheque 4320 had been written about the same time as these cheques, probably some time in early March.

25.  As a result we find that it was not proved that the cheque had been written and sent on or before 30 January. We concluded that it was not shown that the Appellant had a reasonable excuse for the failure to make payments Numbers (1) and (2).

(B) The delay in relation to the payment of £3,000 due on 31 July 2008

26.   This payment was due on 31 July 2008 and not paid until 10 September 2008.

27.  Mr Jordan told us that at this time his mother, Mrs Mattocks, had been managing his accounts for him and had been responsible for the making of payments.

28.  We were provided with no evidence relating to the reasons for late payment other than Mr Jordan's description. We were unable to conclude on this evidence that there was a reasonable excuse for failure. If Mrs Mattocks had simply forgotten to pay or decided to delay payment it would be unlikely that there would be any reasonable excuse. If there were another reason for this delay there might be such an excuse. We therefore directed that The Appellant should on or before 30 June 2010 send to the tribunal a statement from his mother describing the circumstances surrounding the making of the 31 July 2008 payment on account and the reasons for the delay together with any other evidence in relation to that delay he wished to adduce.

29.  In response to this direction the Appellant provided a letter to the tribunal from Mrs Mattocks. In that letter she explains that during 2007/8 she had had difficulties with her elderly mother and had become very unwell. As a result she did not attend to her son’s affairs as well as should have done.

30.  Mrs Mattock’s letter does not refer to the precise circumstances of the delay in payment Number (3). Had we concluded that the Appellant had a reasonable excuse in relation to payments Number (1) and (2), we might have directed a further oral hearing to hear Mrs Mattocks in person. But given our conclusion in relation to those payments to do so now would serve no purpose in relation to this appeal. We make no finding in relation to the circumstances surrounding the failure to make payment Number (3) or whether or not there was any reasonable excuse for it.

(C) Other matters

 the effects of the withdrawal of gross payment status

31.  Mr Potter submitted that the withdrawal of gross payment status would cause Mr Jordan's business to become unviable.

In our view the effects of withdrawal are only relevant in this respect: namely that the withdrawal should be treated seriously. That we do. But in determining whether or not a taxpayer has a reasonable excuse for failure the effect of the potential withdrawal is not otherwise relevant to the determination of whether or not the Appellant had such an excuse.

Conclusion

We dismiss the appeal: there were compliance failures in relation to payments Number (1) and (2), there was no reasonable excuse for those failures. As a result the condition for gross payment was not satisfied and HMRC were entitled by section 66 to terminate the Appellant’s gross payment status.

Rights of Appeal

32.    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

CHARLES HELLIER

RELEASE DATE: 16 November 2010