First-tier Tribunal (Tax)

[2011] UKFTT 17 (TC)

TC00894

Appeal number: TC/2009/15083

Failure to make deductions from payments to sub-contractors – HMRC not satisfied payments taken into account on sub-contractors returns – determinations to pay amount not deducted – whether determinations in correct amount – amount partly reduced – insufficient evidence for further reduction –  Appeal allowed in part – Regulation 13 of the Income tax (Construction Industry Scheme) Regulations 2005 

FIRST-TIER TRIBUNAL

TAX

PVC FASCIA COMPANY Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

TRIBUNAL: JOHN BROOKS (TRIBUNAL JUDGE) RICHARD CORKE (MEMBER)

Sitting in public at Eastgate House, Cardiff on 5 November 2010

Brian Roberts of Brian Roberts & Co Chartered Accountants for the Appellant

Colin Ward of HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.       Having orally announced our decision on the day of the hearing we were requested by Mr Roberts, who appeared on behalf of the Appellant, to provide full written findings and reasons for our decision. Under Rule 35(4) of the Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009 (“the Rules”), it is made clear that a party wishing to appeal must apply for full written findings and reasons for the decision before seeking permission to do so. Therefore, this decision is provided, in accordance with the Rules in order to enable the Appellant to decide whether to apply for permission to appeal against the decision of the Tribunal and to assist them in formulating any such appeal.

2.       This is an appeal, by PVC Fascia Company, against determinations by HM Revenue and Customs (“HMRC”) under Regulation 13 of the Income tax (Construction Industry Scheme) Regulations 2005 in respect of payments made to subcontractors during 2003-04, 2004-05, 2005-06 and 2006-07.

3.       All further references in this decision to a particular Regulation or Regulations will, unless otherwise stated, be a reference to the Income tax (Construction Industry Scheme) Regulations 2005.

4.       Although we did not hear any oral evidence and were not provided with a statement of agreed facts the underlying facts, derived from the documents, were not disputed.

5.       During the years with which this appeal is concerned (2003-04 to 2006-07 inclusive) PVC Fascia Company was a partnership (the “Partnership”) between two brothers Glyn and Alan Hardwicke who commenced trading as PVC Fascia fitters in November 1998.

6.       The Partnership accounts for the year ended 31 October 2005 (2005-06) showed a deduction from profits of £53,981 for “Construction Industry Costs”. This led to a review by HMRC, under Regulation 41, which established that the Partnership was a contractor within s 560(2) Income and Corporation Taxes Act 1988 (“ICTA”) and that the persons working for it were sub-contractors under s 560(1) ICTA. The review also established that the Partnership had failed to make the deductions from payments made to sub-contractors as required by s 559(4) ICTA during 2005-06. Other years were then reviewed by HMRC and it was discovered that the Partnership had also failed to make deductions in respect of payments to sub-contractors in 2003-04, 2004-05 and 2006-07.

7.       The Partnership accepted that it was required to make the deductions and account for this to HMRC and although it did not do so argued that it should, in accordance with Regulation 9, not be required to pay these sums. This Regulation provides that where it appears to an officer of HMRC that the deductible amount exceeds the amount actually deducted HMRC may make a direction that that the contractor is not liable to pay the excess to HMRC if either condition A or B is met.

8.       Condition B, which is set out in Regulation 9(4), is relevant to this appeal and insofar as is material provides:

(a) An officer of Revenue and Customs is satisfied that the person to whom the contractor made the contract payments … either – 

(i)  …, or

(ii) has made a return of his income or profits in accordance with section 8 [Taxes Management Act 1970] (personal return) … in which those payments were taken into account, and paid the income tax and class 4 contributions due … in respect of such income or profits; and

(b) the contractor requests that [HMRC] make a direction under [Regulation 9(5)].

9.       Following a request by the Partnership’s accountants, Brian Roberts & Co, who had provided further information regarding the payments to sub-contractors, HMRC, made a direction under Regulation 9(5) that the Partnership was not liable to pay £2,990.16 in respect of payments made to sub-contractors in 2004-05; £2,546.82 for 2005-06 payments; and £7,548.66 for 2006-07. However, as HMRC was not satisfied that all sub-contractors had made a return of their income or profits and paid the tax due for the years in question, determinations, under Regulation 13, were made on 19 May 2009 requiring the Partnership to make the following payments:

2003-04 £7,946.46

2004-05 £5,688.36

2005-06 £5,004.72

2006-07 £1,600.92

_________

Total £20,133.20

10.    The Partnership appealed against the determinations in a letter of 19 May 2009 from Brian Roberts & Co to HMRC. In replying HMRC realised that an error had been made in respect of the calculation for 2003-04 with the result that the determinations were amended reducing the total amount payable by £1,108.26 to £19,132.20. HMRC subsequently reviewed the case concluding, as stated in the letter to Brian Roberts & Co of 13 August 2009, that a further £10,676.88 for 2003-04 and 2005-06 should have been included in the direction under Regulation 9 as an amount that the Partnership were not liable to pay.

11.    Regulation 13(3) provides that “a determination under this regulation must not include amounts in respect of which a direction under regulation 9(5) has been made and directions under that regulation do not apply to amounts determined under this regulation” and, although the effect of this is that we are concerned with the £19,132.20, as determined under Regulation 13, and not the reduced amount, Mr Ward, for HMRC, quite properly conceded that, as HMRC accepted the conclusion of its review, we should reduce the determinations to £8,455.32.

12.    Mr Roberts explained that the £8,455.32 relates to payments made to three sub-contractors who have not co-operated with the Partnership or provided any assistance in resolving the dispute with HMRC. He contended that as the three individuals have declared income on relevant tax returns, most of which must logically have come from the Partnership as they have earned substantial amounts from the Partnership over the years in question, there should be a “fair reduction” from the amount the Partnership was liable to pay.

13.    For HMRC, Mr Ward submitted that having identified the amounts which satisfied Condition B of Regulation 9(4) HMRC made determinations under Regulation 13(2) to collect the tax which did not satisfy the Condition and, in the absence of any evidence to the contrary, the Regulation 13 determinations should be confirmed.

14.    Regulation 13(5)(a) provides that “a determination under this regulation is subject to parts 4, 5 and 6 of [Taxes Management Act 1970] (assessment, appeals, collection and recovery) as if the determination were an assessment.”

15.    Part 5, of the Taxes Management Act 1970 includes s 50(6). This provides that if, on an appeal, it appears to the Tribunal that an appellant is overcharged by an assessment the assessment shall be reduced accordingly but “otherwise the assessment … shall stand good.” The long established effect of such a provision is that the onus lies upon an appellant to satisfy the Tribunal upon sufficient evidence that the assessment, or in this case the determinations, were erroneous (see T Haythornwaite & Sons v Kelly (HM Inspector of Taxes) (1927) 11 TC 657)

16.    In the present case, due no doubt to the lack of co-operation from the sub-contractors concerned, the Partnership has been unable to produce any evidence that the determinations were erroneous. In such circumstances the determination, insofar as it relates to the £8,455.32, therefore stands good. However, in the light of the concession by HMRC, we find that the determinations overcharged the Partnership by £10,676.88 and therefore reduce them accordingly.

17.    The appeal is therefore allowed in part to reflect the reduction in the determinations of £10,676.88 with the result that the Partnership is liable to pay £8,455.32 to HMRC

18.    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:24 November 2010