Norman Bruce t/a Norrie Bruce Plant Hire v Revenue & Customs [2011] UKFTT 241 (TC) (11 April 2011)
DECISION
The Appeal
1. The
Appellant, Norman Bruce, trading as Norrie Bruce Plant (“NB”), appealed against
the withdrawal and cancellation of Gross Construction Industry Status under
sections 66 and 67 of the Finance Act 2004 by the Respondents (“HMRC”)
2. Evidence was
given by Norman Bruce for the Appellant and by Joyce Ballingal for the
Respondents and both witnesses were credible.
3. The
Construction Industry Scheme was introduced in its form from 6 April 2007 whereby a sub contractor receives gross payments for a contractor without any
deduction being taken from the payment.
4. Participants
in the scheme are subject to a review of the sub contractor’s compliance
records by HMRC once a year by running a “scheduled review” which is an automated
check on whether the sub contractor has complied with all their obligations as
a tax payer including, if appropriate, as an employer or contractor.
The Legislation
5.
Finance Act 2004 provides:-
Section 66 Cancellation of registration for gross
payment
(1) The Board of Inland Revenue may at any time make a
determination cancelling a person’s registration for gross payment if it
appears to them that—
(a) if an application to register the person for gross
payment were to be made at that time, the Board would refuse so to register
him,
(b) he has made an incorrect return or provided
incorrect information (whether as a contractor or as a sub-contractor) under
any provision of this Chapter or of regulations made under it, or
(c) he has failed to comply (whether as a contractor
or as a sub-contractor) with any such provision.
(2) Where the Board make a determination under
subsection (1), the person’s registration for gross payment is cancelled with
effect from the end of a prescribed period after the making of the
determination (but see section 67(5)).
(3) The Board of Inland Revenue may at any time make a
determination cancelling a person’s registration for gross payment if they have
reasonable grounds to suspect that the person—
(a) became registered for gross payment on the basis
of information which was false,
(b) has fraudulently made an incorrect return or
provided incorrect information (whether as a contractor or as a sub-contractor)
under any provision of this Chapter or of regulations made under it, or
(c) has knowingly failed to comply (whether as a
contractor or as a sub-contractor) with any such provision.
Schedule 11 Conditions for Registration for Gross Payment
Part 1 Conditions to be satisfied by individuals
General
1
(1) In the case of an application for an individual to be registered for gross
payment, the following conditions must be satisfied by the individual.E+W+S+N.I.
(2)
But where the application is for the registration of the individual as a
partner in a firm, this Part of this Schedule has effect with the omission of
paragraphs 2 and 3…………
The
compliance test -+W+S+N.I.
4
(1) The applicant must, subject to sub-paragraphs (3) and (4), have complied
with—E+W+S+N.I.
(a)
all obligations imposed on him in the qualifying period (see paragraph 14) by
or under the Tax Acts or the Taxes Management Act 1970 (c. 9); and
(b)
all requests made in the qualifying period to supply to the Inland Revenue
accounts of, or other information about, any business of his.
(2)
An applicant who at any time in the qualifying period had control of a company
is to be taken not to satisfy the condition in sub-paragraph (1) unless the
company has satisfied that condition in relation to the period or periods
within the qualifying period during which he had control of it; and for this
purpose “control” is to be construed in accordance with section 416(2) to (6)
of the Taxes Act 1988.
(3)
An applicant or company that has failed to comply with such an obligation or
request as—
(a)
is referred to in sub-paragraph (1); and
(b)
is of a kind prescribed by regulations made by the Board of Inland Revenue,
is,
in such circumstances as may be prescribed by the regulations, to be treated as
satisfying the condition in that sub-paragraph as regards that obligation or
request.
(4)
An applicant or company that has failed to comply with such an obligation or
request as is referred to in sub-paragraph (1) is to be treated as satisfying
the condition in that sub-paragraph as regards that obligation or request if
the Board of Inland Revenue are of the opinion that—
(a)
the applicant or company had a reasonable excuse for the failure to comply; and
(b)
if the excuse ceased, he or it complied with the obligation or request without
unreasonable delay after the excuse had ceased.
(5)
Where the applicant states, for the purpose of showing that he has complied
with all obligations imposed on him as mentioned in sub-paragraph (1), that he
was not subject to any of one or more obligations in respect of any period
within the qualifying period—
(a)
he must satisfy the Board of Inland Revenue of that fact by such evidence as
may be prescribed in regulations made by the Board; and
(b)
if for that purpose he states that he has been outside the United Kingdom for
the whole or any part of the qualifying period, he must also satisfy them, by
such evidence as may be so prescribed, that he has complied with any
obligations imposed under the tax laws of any country in which he was living
during that period which are comparable to the obligations mentioned in sub-paragraph (1).
6.
The Income Tax
(Construction Industry Scheme) Regulations 2005 provides:-
No.
2045, Regulation 32
Compliance
Test
Obligation
to pay income tax.
(1) Payment
is made not later than 28 days after the due date, and
(2) the
applicant has not otherwise failed to comply with this obligation within the
previous 12 months.
7.
The Income Tax (Construction
Industry Scheme) (Amendment No.2) Regulations 2008 provides:-
No. 1282, Regulation 2
Amendment to the Income Tax (Construction Industry Scheme)
Regulations 2005
In
Table 3 in regulation 32 (exceptions from compliance obligations) of the Income
Tax (Construction Industry Scheme) Regulations 2005(1)
insert at the end—
(1) Obligation to make a payment under the Tax Acts or Taxes
Management Act 1970.
(2) Late or non payment of an amount under
£100.
The Facts and Submissions
8. This
appeal was late but HMRC raised no objection to the hearing taking place.
9. HMRC say
that NB failed a scheduled review covering the period 16 June 2009 to 16 June
2010 for the following reasons:-
a) NB did not
comply with his tax obligations during the qualifying period of the scheduled review
as required under Schedule 11 of the Finance Act 2004.
b) The
failures identified by the scheduled review did not fall under those which can
be disregarded under Section 32 (Statutory Instrument 2005/2045) or Regulation
2 (Statutory Instrument 2008/1282); and
c) The
grounds of appeal put forward by the Appellant did not constitute a reasonable
excuse as to why the tax obligations were not met.
10. HMRC issued a letter on 21 June 2010 advising NB that the status would be changed from gross status to payment
under deduction. This would cancel the registration for gross payment.
11. NB wrote on 5 July 2010 stating “There were no funds available to pay my tax bill. As I have been
subjected to late payments from contractors myself. As soon as the funds became
available I paid £927.74 immediately bringing everything up to date”.
12. HMRC replied on 27 August 2010 noting the reason put forward for not paying tax due by 31 January 2010 was due to NB receiving late payments from his contractors.
13. HMRC asked for documentary evidence
to support this.
14. On 13 September 2010, NB enclosed NB’s bank statements and invoices which showed the account to be in
credit and stating that he had a number of sub contractors to pay from the
credit figures shown in the statements. NB stated “I made a mistake stating in
my last letter there were late payments from contractors”.
15. A bank statement showed a
balance brought forward at 24 December 2009 of just over £30,688 and a bank statement
to 25 February 2010 showing a closing balance of just over £24,969. The
account generally held a minimum balance of approximately £19,000.
16. HMRC wrote on 27 September 2010 stating they were unable to accept an appeal against their decision because
they had not yet received documentary evidence.
17. NB say they had sent the
evidence to the Newry office of HMRC and for reasons of internal delay within
HMRC this took over 14 days to reach the appropriate individual within the HMRC
office.
18. On 6 October 2010, then, responding to NB’s letter of 13 September 2010, HMRC stated that they were
unable to change their original decision on the basis that the reason
originally given for late payment, being that no funds were available, was
untrue. This letter stated that the credit balance at 28 January 2010 was just
over £19,990.
19. NB wrote an undated letter
received by HMRC on 26 October 2010 that he wished an appeal. This letter said
that the business was concentrating on getting and keeping contracts and tax matters
were left to an accountant, paid and trusted to give proper advice. NB stated
that the accountant had told him to say there were insufficient funds when
there were not and he admitted that he may have been “a bit naive”.
20. NB say that as soon as this
was realised a cheque in full settlement was sent. NB also say that if NB was
changed to the Payment under Deduction Scheme it would have a very bad effect
on business and would result in a reduction in their workforce.
21. HMRC wrote on 9 December
2010 stating that the failure of the scheduled review related to one compliance
failure on self assessment in that the balancing payment for 2008/2009 which
was due for payment on or before 31 January 2010 was not settled until 2 April
2010 which was 61 days after the date payment was due.
22. HMRC say that reasons given
by NB did not constitute a reasonable excuse for the tax obligations not being
met. Principally, they stated that the initial explanation of experiencing
cash flow problems and then relying on an agent were not reasonable excuses as
the legislation places a responsibility on the contractor and that
responsibility cannot be transferred to an agent or other third party.
23. HMRC say that statements of
account were issued on 14 December 2009 and, again on 4 March 2010, as reminders of unpaid tax and that the bank statement submitted by NB showed that there
were sufficient funds to cover the tax liability at the time it was due.
24. HMRC say that if NB were experiencing
difficulties of being able to make the payment they should have contacted HMRC
for advice and furthermore that HMRC provide measures of flexibility and some
failures can be overlooked. HMRC say they cannot overlook late payment of self
assessment tax unless there is a reasonable excuse.
25. On 21 January 2011, NB wrote stating that the business was going well and that being taken off the Gross Payment
Scheme would have a bad effect on future work.
26. HMRC wrote on 1 February 2011 sympathising and noting this point but stating that possible effect on future
trade was not a relevant consideration in considering a reasonable excuse.
27. NB say that they had always
paid tax on time before and subsequent to the assessment which resulted in the
withdrawal of the Gross Payment Scheme being the subject of this appeal.
28. NB say that it had been naive
to take the accountant’s advice when stating that there were no funds available
to pay the tax bill and that payments were due from contractors and then to subsequently
say that there were a number of sub contractors to pay from the cash held.
29. NB say that Mr Bruce had
been too busy to deal with matters due to the expansion of the business at that
time.
30. NB say they could not
remember receiving the statement of accounts issued on 14 December 2009
and on 4 March 2010. NB stated that they had no knowledge of the scheme
available in the event of difficulty in paying liabilities.
31. NB say that the late payment
was an oversight.
Findings
32. The Tribunal was sympathetic
to NB’s statements that the payment was an oversight and had not happened before
or after, and to the consequences of the possible current economic consequences
in the event of withdrawal of Gross Payment Status. The Tribunal was unable to
reach the decision that the factors put forward by NB constituted a reasonable
excuse.
33. The payment of tax was over
two months late at a time when funds appeared to be available for its payment.
34. Insufficient evidence was
put forward to prove that the accountant had been negligent or why the accountant’s
advice had been accepted without query when the bank statements issued on 25 January 2010 and 25 February 2010 clearly showed a balance of cash more than sufficient
to meet the self assessment tax liability.
35. The HMRC guidance setting
out failures of compliance which can be overlooked insofar as they relate to late
payment, allows only one late payment of self assessment tax of £100 and even
then this has to be no more than 28 days late. The circumstances in this case
did not meet these criteria.
36. The Tribunal accepts that
there have been and will be considerable difficulties in the current economic
climate but the scheme requires the Appellant to comply with all obligations
imposed on it unless where failure to comply is of a kind prescribed by the regulations.
37. The Tribunal also considered
and was sympathetic to the Appellant’s submission that withdrawal of the Gross Payment
Status may have an adverse effect on the business but the consequences of
cancellation of Gross Payment Status is not relevant to the issue of whether or
not there is a reasonable excuse.
38. The purpose of Parliament in
creating the legislation was to procure strict compliance with tax obligations
by making such compliance the price of obtaining a certificate and there could
be unfair competitive advantages to allow the Gross Payment Status to continue
despite clear failure.
39. Whereas there was a reason
to expect that the Appellant would in respect of the period after the
qualifying period comply with such obligations and requests imposed upon it was
not sufficient to displace the lack of a reasonable excuse.
40. Having carefully considered
all the evidence and regulations it was decided that the compliance test had
not been met and that there is no reasonable excuse.
41. The Appeal is therefore dismissed.
42. 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.
W RUTHVEN GEMMELL, WS
TRIBUNAL JUDGE
RELEASE DATE: 11 APRIL 2011
