First-tier Tribunal (Tax)

[2011] UKFTT 136 (TC)

TC001010

Appeal number TC/2010/08052

Construction Industry Scheme – Appeal against cancellation of registration for gross payment – ‘Compliance test’ –  Whether there was a reasonable excuse on the facts – Yes  – Appeal allowed – section 66 &  schedule 11 Finance Act 2004

FIRST-TIER TRIBUNAL

TAX

ANTHONY WOOD T/A PROPAVE Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

TRIBUNAL: JOHN BROOKS (TRIBUNAL JUDGE)

MICHAEL TAYLOR CBE DL (MEMBER)

Sitting in public at Vintry House, Wine Street, Bristol BS1 2 BP on 7 February 2011

The Appellant in person

David Lewis of HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2011

DECISION

1.       Having orally announced our decision to allow this appeal Mr David Lewis, who appeared for HM Revenue and Customs (“HMRC”), requested that we provide these full written findings of fact and reasons.

2.       Mr Anthony Wood, who trades as Propave, appeals against the withdrawal of gross payment status under the Construction Industry Scheme following a review by HMRC during the year ended 19 March 2010.

3.       A person’s registration for gross payment may be cancelled by HMRC at any time under section 66(1)(a) of the Finance Act 2004 (the “Act”) if it appears that “if an application to register the person for gross payment status were to be made at that time” it would be refused. Section 63(2) of the Act provides that HMRC “must” register a person for gross payments company if they are satisfied that the requirements of section 64 of the Act are met. To meet these requirements, insofar as they are relevant to the present appeal, an individual must satisfy the “business test”; the “turnover test”; and the “compliance test” as set out in Part 1 of schedule 11 to the Act (see section 64(4)(a) of the Act).

4.       This appeal is concerned with the “compliance test” which requires an individual to comply with his obligations under the tax legislation. Mr Wood accepts that his self-assessment second payment on account for 2008-09 which was due on 31 July 2009 (for which he made payments of £1,000 on 4 August, 9 September and 29 October 2009) was late. It is also common ground that Regulation 32 of the Income Tax (Construction Industry Scheme) Regulations 2005 under which one or two small delays in payment can be ignored is not applicable in the present case. 

5.       However, Mr Wood will be treated as having satisfied the compliance test, in accordance with paragraphs 4(4) & (7) of schedule 11, if he can establish that he has a reasonable excuse for the failure to comply with his tax obligations, and has complied with his obligations without unreasonable delay after the excuse ceased and can be expected to comply in respect of periods after the review period (see paragraph 14 of schedule 11 of the Act). As future compliance was not in dispute the issue for us to determine was whether Mr Wood had a reasonable excuse for the late payment of tax.

6.       We heard from Mr Wood that his business had suffered as a result of the recession and that he was aware from the media (radio and newspapers) that the Government had announced in November 2008 [in the Pre-Budget Report] that HMRC would enable firms facing difficulties [as a result of the recession] to spread their tax on a timetable they can afford and had sent the three £1,000 cheques to HMRC on the understanding that he would be given time to pay. He explained, and we accept, that he is not computer literate and did not consult HMRC’s website and did not realise that it was necessary for him to arrange a formal time to pay arrangement with HMRC. When Mr Wood’s self-assessment return for 2008-09 was submitted to HMRC, on 24 November 2009, it transpired that he had, in fact, overpaid the tax due for the year and received a repayment.

7.       It would seem that if he had realised that it was necessary for him to contact HMRC and had he done so before the due date for payment of the tax it is possible that he would not have been regarded as having failed the compliance test and that his gross payment status may not have been withdrawn.

8.       Mr Wood also told us that all of his work was obtained from other ground work sub-contractors and that the loss of his gross payment status would probably result in the closure of his business and loss of his livelihood.

9.       Mr Lewis expressed sympathy for Mr Wood’s position but contended that the effect of the withdrawal of gross payment status on his business was not a matter that could be taken into account when considering the question of whether Mr Wood had a reasonable excuse. He submitted that as Mr Wood had failed to comply with his obligations under the Taxes Act and had not established a reasonable excuse for the late payment of his tax the appeal should be dismissed.

10.    There is no definition in the legislation of a “reasonable excuse” which “is a matter to be considered in the light of all the circumstances of the particular case” (see Rowland v HMRC [2006] STC (SCD) 536 at [18]).

11.    Having considered all the circumstances of this case, in particular Mr Wood’s misunderstanding of being able to spread his tax payments over a period of time without reference to HMRC, we come to the conclusion that Mr Wood does have a reasonable excuse for the one late payment of tax that resulted in the withdrawal of his gross payment status.

12.    Even of this were not the case we find ourselves in a similar position to the Tribunal in the case of Terence Bruns t/a T K Fabrications v HMRC [2010] UKFTT 58, in which it was found that a withdrawal of gross payment status would be likely to cause the Appellant to lose his livelihood and suffer severe economic loss on the sale or scrappage of his equipment. We agree with the Tribunal Judge in that case (John Walters QC) where he said, at [32]:

“These consequences which would be likely to flow from a withdrawal of gross payment status would, in our judgment, be wholly disproportionate to the late payment of tax in this case (for which HMRC were, we assume, in any case compensated in interest).  This factor could well render the Appellant’s excuse reasonable even if, contrary to our findings above, there was no other basis on which his excuse could be held to be reasonable.”

13.    We therefore allow the appeal.

14.    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: 23 FEBRUARY 2011