[2011] UKFTT 113 (TC)

TC00989

Appeal number TC/2010/07516

Construction Industry Scheme - penalty for late delivery of return - whether return deemed to be delivered in the ordinary course of post - yes - whether return delivered late - no - appeal allowed

FIRST-TIER TRIBUNAL

TAX

                                                HARRY GIBSON                                            Appellant

                                                                      - and -

                                THE COMMISSIONERS FOR HER MAJESTY’S

                                                   REVENUE AND CUSTOMS                             Respondents

                                                TRIBUNAL: Anne Redston (Chair)

                                                                        Julian Sims (Member)

Sitting in public at the Southampton Appeals Service, 83-85 London Road, Southampton on 19 January 2010

The Appellant appeared in person

Ian Compton, Appeals and Reviews Unit, HM Revenue and Customs, represented the Respondents

© CROWN COPYRIGHT 2011

DECISION

1.        Mr Gibson is a contractor operating within the Construction Industry Scheme ("CIS"). Contractors are required to file monthly returns, and late filing of a return triggers a penalty. This is Mr Gibson’s appeal against a £100 late filing penalty.

The legislation

2.      CIS was introduced in 1975 to counteract perceived evasion of tax by self-employed workers in the building industry. The current rules are set out at FA 2004, ss 58-63 and Schedule 11 of that Act, together with the Income Tax (Construction Industry Scheme) Regulations 2005 (“the Regulations”).

3.        Regulation 4 deals with the submission of monthly returns. The paragraphs relevant to this appeal are as follows:

(1)        A return must be made to the Commissioners for Her Majesty's Revenue and Customs in a document or format provided or approved by the Commissioners—

 (a)       not later than 14 days after the end of every tax month, by a contractor making contract payments or payments which would be contract payments….

….

(10)      If a contractor who has made a return, or should have made a return, under this regulation makes no payments under construction contracts in the tax month following that return, the contractor must make a nil return not later than 14 days after the end of that tax month.

(11)      …

(12)      Subject to paragraph (13), section 98A of TMA (special penalties in the case of certain returns) applies to the requirements in—

(a)        paragraph (1),

(b)        …

(c)        …

(d)        paragraph (10).

(13)      A penalty under section 98A of TMA in relation to a failure to make a return in accordance with paragraphs (1) or (10) arises for each month (or part of a month) during which the failure continues after the 19th day of the sixth month following the appointed day.

4.        Taxes Management Act 1979, s 98A, under the heading ‘Special penalties in the case of certain returns’ so far as is relevant in this case, reads:

(1)        …regulations under section 70(1)(a) or 71 of the Finance Act 2004 (sub-contractors) may provide that this section shall apply in relation to any specified provision of the regulations.

(2)        Where this section applies in relation to a provision of regulations, any person who fails to make a return in accordance with the provision shall be liable—

(a)        to a penalty or penalties of the relevant monthly amount for each month (or part of a month) during which the failure continues…

(b)        …

(3)        For the purposes of subsection (2)(a) above, the relevant monthly amount in the case of a failure to make a return—

(a)        where the number of persons in respect of whom particulars should be included in the return is fifty or less, is £100….

5.        The Interpretation Act 1978, s 7 is as follows:

Where an Act authorises or requires any document to be served by post (whether the expression "serve" or the expression "give" or "send" or any other expression is used) then, unless the contrary intention appears, the service is deemed to be effected by properly addressing, pre-paying and posting a letter containing the document and, unless the contrary is proved, to have been effected at the time at which the letter would be delivered in the ordinary course of post.

The issue

6.        The issue is straightforward: HMRC’s case is that Mr Gibson’s CIS return for December 2009 was due on 19 December 2009, but was not received by them until 22 December, and that he must thus pay the £100 late filing penalty. Mr Gibson said he had posted the return on 15 December in good time for the deadline, and he appealed the penalty.

Mr Gibson’s submissions

7.        Mr Gibson said that he was meticulous with his paperwork. He always completed the paper return in order to calculate how much tax was due, and then went to the bank to pay the money. After making the payment, he would drop the return into the post box at the main sorting office in Poole. He always did this in good time before the due dates.

8.        The return for December 2009 was a nil return, so there was no money to pay over. Nil returns can be reported to HMRC by telephone. But as he had completed the return, he decided to post it as normal. He was completely sure that he posted the return at 6pm on Tuesday 15 December. The last collection is made from the sorting box at 8pm.

9.        He had not obtained a certificate of posting. He had tried to do this on previous occasions but at that time of day the queue was “out of the door” and it could take an hour to reach the counter. He put the return in a large envelope and sent it by first class large letter post.

10.    When he received the penalty he had requested an internal HMRC review, but the reviewing officer confirmed the decision.

11.    Mr Gibson submitted that the problem was not with late delivery, but because HMRC had not opened the post on receipt. His case was that “this problem lies with HMRC and their procedures for sorting and registering the mail.”

HMRC’s submissions

12.    Mr Compton said that the return had been received on Tuesday 22 December, after the deadline of 19 December.

13.    The Tribunal asked whether there was any evidence to support HMRC’s case. Mr Compton said he did not have the original return submitted by Mr Gibson, and he thus did not know if it had been date-stamped on arrival. He was not able to provide the Tribunal with any evidence about the procedures for receipt of returns at the particular HMRC office, but understood that normally post is registered on the office computer on receipt and the computer would have then generated the penalty notice. However, the evidence before the Tribunal did not include a computer record showing late registration of Mr Gibson’s return, but only HMRC’s correspondence with Mr Gibson, in which they stated that the return was received on 22 December.

14.    Mr Compton said that Mr Gibson had a history of submitting late returns. HMRC had already waived a number of penalty notices. It was Mr Gibson’s responsibility to send in his return on time, and he had not done this.

Mr Gibson’s reply

15.    Mr Gibson said that, as already explained to the Tribunal, he had a monthly procedure for his CIS returns. On a number of previous occasions he had paid over the money, and posted the return, both in good time, only to receive a penalty notice. On each occasion he had called HMRC and asked if they had received the money on time, and on each occasion was told the money had been received within the deadline, but the return itself had been received late. And on each occasion, having pointed this anomaly out to HMRC, they had cancelled the penalty.

16.    Mr Gibson submitted that the history was not, therefore, a history of late payment, but a history of HMRC failing to record the post on the day it was received.

17.    On every previous occasion he had been able to cite the payment date as evidence to support his posting date. In December, because it was a nil return, there was no supporting evidence and HMRC had therefore refused to waive the penalty.

18.    The Tribunal asked Mr Compton if he was able to provide any background about the previous alleged late payments, and the reasons for the cancellation of the penalties, but he did not have this information.

19.    We also asked Mr Compton if he had any submissions on the Interpretation Act 1978, s 7 and drew his attention to the case of Wing Hung Lai v Bale[1999] STC (SCD) 238 which applied that section in a different context. Mr Compton did not have any submissions.

Decision

20.    The issue in this case is whether the return was delivered to HMRC by the due date of 19 December. Mr Gibson was a highly credible witness, and the Tribunal accepted his evidence that he posted the return on 15 December; we also accept his further evidence as to the location and time of posting and the collection times from the Poole sorting office.

21.    The Regulations require that the CIS return “must be made to the Commissioners” by the due date, and it was common ground that this return could be “made” by being sent by post. As stated above, the Interpretation Act 1978, s 7 applies where:

            “an Act authorises or requires any document to be served by post (whether the expression ‘serve’ or the expression ‘give’ or ‘send’ or any other expression is used) then, unless the contrary intention appears, the service is deemed to be effected by properly addressing, pre-paying and posting a letter containing the document.”

22.    In the absence of any contrary intention in the relevant legislation, and noting in particular the width given to the expression “serve”,  we find that s 7 applies to the delivery of Mr Gibson’s CIS return to HMRC.

23.    We take judicial notice of the fact that first class post normally arrives, if not the next day, at least by the day after that. A letter posted first class at 6pm on Tuesday 15 December could thus be expected to arrive on or before Thursday 17 December - in good time for the deadline of 19 December.

24.    Section 7 further states that the deemed delivery date applies “unless the contrary is proved.” Mr Gibson’s return is thus deemed to be delivered in the normal course of post unless HMRC can rebut that presumption.

25.    HMRC produced no evidence to support their submission that the return had been delivered on 22 December. They were thus unable to rebut the presumption. We therefore allow Mr Gibson’s appeal.

The history and HMRC’s system for opening post

26.    We thus did not need to consider the history of previous returns which was raised before us by HMRC. But we note that on the facts before us, Mr Gibson did not have a history of making late returns. Rather, HMRC had a history of issuing penalties for returns it said were delivered late, but then cancelling those penalties when Mr Gibson drew attention to the fact that his CIS payment had been received on time.

27.    The history thus supports Mr Gibson’s submission that his CIS penalty notice was not triggered by his delay in posting the return, but by errors within HMRC’s postal recording system.

28.    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.

Anne Redston

TRIBUNAL CHAIR

RELEASE DATE: 10 FEBRUARY 2011