First-tier Tribunal (Tax)

[2011] UKFTT 28 (TC)

TC00905

Appeal number TC/2010/02251

CIS complaints test – repeated late payment of tax – effects of house building recession on construction industry – whether reasonable excuse - no

FIRST-TIER TRIBUNAL

TAX

MARK MCDOWALL Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

TRIBUNAL: Mr Michael S Connell (Tribunal Judge)

Mr A W Holden (Member)

Sitting in public at Cunard Building  Liverpool on 29 September 2010

Having heard Mr Peter Morris on behalf of the Appellant and

Ms S Whitley on behalf of the Respondents

© CROWN COPYRIGHT 2010

DECISION

1. This is an appeal by the Appellant against HMRC’s decision to cancel his Gross Payment Status in accordance with Section 66(1) Finance Act 2004 following an ongoing review of his compliance with the Construction Industry Scheme regulations.

2. The Tribunal was asked to decided whether or not HMRC’s decision to withdraw the Appellant’s Gross Payment Status was correct and specifically whether or not the Appellant had a reasonable excuse throughout for the failures which led to the HMRC decision to cancel his Gross Payment Status.

3. The onus of proof rests initially with HMRC to prove default and then with the Appellant to prove the reasonable excuse and duration – Section 50 (6) Taxes Management Act 1970.

4. Where an individual makes an application to HMRC for registration for Gross Payment Status he must satisfy the conditions in Part 1 of Schedule 11 Finance Act 2004.  This sets out the three statutory tests which the individual must satisfy to allow the Gross Payment Status to be retained - being the business test, the turnover test and the compliance test.  HMRC accepts that the Appellant satisfied the business and turnover tests but says that the Appellant did not satisfy the compliance test during a qualifying test period from 25.05.08 – 21.05.09.

5. Under Part 1 para 4(1) Schedule 11 Finance Act 2004, the individual must have complied with (inter alia) all obligations imposed on him in the qualifying period by or under the Tax Acts or the Taxes Management Act 1970.

6. The Appellant’s compliance position was considered in a review which took place on 26.05.09 for the qualifying period 25.05.08 – 21.05.09.  HMRC provided the Tribunal with a schedule which detailed the Appellant’s compliance failures.  The Appellant failed to pay income tax on time in respect of three amounts which became due during the qualifying period and the failures were outside the prescribed circumstances that HMRC can overlook.

7. The Appellant did not dispute that payments had been received late and that there was no ‘time to pay’ arrangement in place.  The compliance failures identified by HMRC were :

·       firstly that a self-assessment balancing charge of £1,567.28 due on 31.01.09 was not paid in full until 01.05.09.  A time to pay request had been received on 09.03.09 and a part-payment on account of £997.11 was paid 59 days late.  The balance of £570.17 was paid on 01.05.09, being 90 days late.

·       secondly, the Appellant’s self-assessment first payment on account of £2,500.00 due on 31.01.09 had an outstanding amount due of £2,070.17 as at 21.05.09, in respect of which period there was no time to pay arrangement. 

·       thirdly, the Appellant’s second payment on account of £2,819.31 due on 31.07.08 was not paid in full until 28.11.08.  In respect of this default, although the Appellant contended that a time to pay arrangement was in place, it was not in fact made until 04.09.08.

8. The Appellant’s grounds of appeal were that :

(i) he has been a self-employed builder for over 30 years, employing during that period up to 6 employees including apprentices, and that he is constantly trying to find work in order to provide for himself, his family and employees.

(ii) although the Appellant accepts that he was late paying his tax during the qualifying tax period and indeed has been late paying his tax on previous occasions, he always eventually settles his tax liabilities and, since the advent of self-assessment in 1997, has always submitted his tax returns on time.

(iii) the Appellant says he has been seriously affected by the house building recession and that, in particular in 2008, he had a £4,500.00 bad debt and that paying wages to employees was a priority before paying HMRC, otherwise he would not be able to continue in business.

(iv) the Appellant says that the financial consequences of losing his Gross Payment Status would leave him in an impossible position and in all probability it would affect his turnover and hence his ability to requalify the Gross Payment Status in the future.

9. The Tribunal has the jurisdiction to review HMRC’s decision to remove an individual’s Gross Payment Status as defined at Section 67(4) Finance Act 2004 and to consider whether a reasonable excuse existed throughout the period of default under Section 118(2) Taxes Management Act 1970.  The latter section provides that a person shall be deemed not to have failed to do anything required to be done within a reasonable time if he did it within such further time (if any) as allowed or, where a person had reasonable excuse, did it without unreasonable delay after the excuse had ceased.  ‘Reasonable excuse’ is not defined in legislation and it is generally taken to have its ordinary everyday meaning.

10. During the qualifying period Mr McDowall contacted HMRC on two occasions requesting instalment arrangements for which the due date for payment had already passed.  Mr McDowall has been a self-employed builder for some 30 years and is aware of his tax obligations but failed to make provision for tax to ensure that payment reached HMRC by the due date and statute makes it quite clear that failures of this nature leave HMRC no option but to cancel an individual’s Gross Payment Status.

11. The Appellant, in giving evidence to the Tribunal, referred to the devastating effects of the house building recession on the construction industry.  Details of his turnover and net profits for the years 2005/06 to 2008/09 were provided.  Those showed however that his net profits had not significantly diminished but it appeared from his personal drawings that he had significantly overdrawn throughout the period in question and in particular during 2007/08.  The Appellant also told the Tribunal that he had been ‘helping out’ one of his sons and had probably financially overstretched himself.  Another of the Appellant’s sons had been very seriously ill but this pre-dated the compliance failures and the Appellant did not seek to use that particular reason as an excuse.

12. The Tribunal considered the Appellant’s submissions with some sympathy but it was clear that he had failed to meet his tax obligations during the qualifying period and therefore the Tribunal found as a fact that the ‘Compliance Tests’ had not been met and that there was no reasonable excuse for the failures.

13. The Tribunal accordingly dismissed the Appellant’s appeal.

14. This Decision contains full findings of fact and reasons for the decision.  A party wishing to appeal this decision must apply within 28 days of the date of release of this Decision.  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.

MICHAEL S CONNELL

TRIBUNAL JUDGE

RELEASE DATE: 30 DECEMBER 2010