Contour Business Interiors v Revenue & Customs [2011] UKFTT 300 (TC) (09 May 2011)
[2011] UKFTT 300 (TC)
TC01162
Appeal number: TC/2010/08259
Income
tax – Construction Industry Scheme – monthly returns – penalties for late
submission – whether reasonable excuse – appointment of new agents –
notification not received by HMRC – change to paper returns after previous
electronic filing not notified to HMRC – paper returns not initially accepted –
held reasonable excuse for initial failure but not afterwards – subject
thereto, appeal dismissed
FIRST-TIER TRIBUNAL
TAX
CONTOUR
BUSINESS INTERIORS Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL:
JOHN CLARK (TRIBUNAL JUDGE) SANDI
O’NEILL
The Tribunal determined the
appeal on 24 January 2011 without a hearing under the provisions of Rule 26 of
the Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009 (default
paper cases) having first read the Notice of Appeal dated 8 September 2010,
HMRC’s Statement of Case submitted on 16 November 2010 and the Appellant’s
Reply dated 10 December 2010.
© CROWN COPYRIGHT
2011
DECISION
1. We
decided in respect of the appeal against the penalties imposed for the late
submission of five monthly Construction Industry Scheme (“CIS”) returns for the
months ended 5 February 2010, 5 March 2010, 5 April 2010, 5 May 2010 and 5 June
2010 that the Appellant initially had a reasonable excuse for the late
submission of the return for the month ending 5 February 2010 but that the
Appellant did not have a reasonable excuse for the late submission of the four
subsequent returns. We therefore allowed the appeal in respect only of the
first penalty of £100 imposed in respect of the return for the period ending
February 2010 but dismissed the appeal in respect of the remaining penalties for
submission of late returns.
2. Following
the issue of our decision in summarised form, the Appellant through its agents
requested full written findings and reasons, on the basis that the Appellant
might wish to take the matter further.
The facts
3. From
the documents provided to us, we make the following findings.
4. CIS
returns were due from the Appellant in respect of the months ended 5 February,
5 March, 5 April, 5 May and 5 June 2010. The Appellant appointed new agents,
George H.W. Griffith Ltd, whose notepaper shows the trading name “Griffith
& Griffith”. They commenced acting for the Appellant in January 2010. No
indication of the actual commencement of their engagement was included in the
papers supplied to us, but as the CIS payment and return in respect of the
period to 5 January 2010 was not in question in this appeal, we find that their
appointment post-dated the work in respect of that return and payment, which
was performed by the Appellant’s previous agents.
5. The
Appellant’s present agents stated in their response to HMRC’s Statement of case
that, according to their records, a form 64-8 was submitted on 11 February
2010. There was no evidence in the documents before us to support this
assertion, and we do not accept that a form was submitted at this point. Further,
as HMRC had no record of receiving this (see below), we find that this form was
not received by HMRC, despite the agents’ internal record of it allegedly having
been sent.
6. Following
their appointment, the Appellant’s present agents began to submit paper CIS
returns on behalf of the Appellant. Payments were made to HMRC in accordance
with the information provided in those returns. The process continued in this
way until HMRC sent the Appellant a series of penalty notices. The first of
these was issued on 5 March 2010. Further notices were issued for each
subsequent month, the final one being issued on 2 July 2010. Copies of the
actual notices were not supplied with the documents submitted to us; from the
list provided by HMRC we find that the Appellant received a number of penalty
notices showing the amounts outstanding and the periods in respect of which
they had been incurred.
7. It
was not until 25 May 2010 that the Appellant’s agents wrote to HMRC, stating
that their client had forwarded to them a statement from HMRC regarding
outstanding monthly CIS returns for the months ending 5 February, 5 March and 5
April 2010. According to the list submitted to us by HMRC showing the dates of
issue of the penalty notices, the notice in respect of the month ending 5 April
2010 had been issued on 30 April 2010. We find that the Appellant did not take
immediate steps to make its agents aware of the issue of the penalty notices,
as there was clearly a delay between the date on which the Appellant received
the notice in respect of the April return and the date of the agents’ letter to
HMRC; there was an even greater gap between the issue dates of the penalty
notices relating to February and March and notification by the Appellant to its
agents that they had been issued to the Appellant.
8. The
agents explained in their 25 May letter that they had commenced acting for the
Appellant in January 2010 and had been submitting paper returns since then,
each one filed within plenty of time to avoid any penalties. They understood
that the previous accountant had submitted CIS returns on line, and suggested
that this perhaps explained why demands had now been sent. They asked HMRC to
confirm that these penalties were not due.
9. On
4 June 2010 HMRC wrote to the Appellant, explaining that they had received
correspondence from “your Agent” dated 25 May 2010 appealing against penalties
for late filing of Contractor monthly returns. The HMRC officer who wrote that
letter stated:
“My records show that your Agent Griffith & Griffith is not listed as having the authority to allow us to exchange and disclose
information about you in relation to your Construction Industry Scheme affairs.
To enable me to do so, would you please have the enclosed form 64-8 completed
and returned within 10 working days from the date of this letter.”
10. In their
response to HMRC’s Statement of Case, the agents indicated that according to
their records, a form 64-8 was “re-completed” and posted on 4 June 2010. Again,
there was no evidence submitted to support this assertion. As the form was
enclosed with HMRC’s letter to the Appellant (and not to the agents) dated 4
June 2010, a Friday, which was the same date on which the agents contend that
they sent the completed form to HMRC, we are not convinced that the agents did
send the form on that date. No copy of the completed form was included in the
evidence. (Our finding in respect of the submission of the form is set out
below.)
11. On 22 June 2010,
HMRC wrote to the Appellant. (If the form 64-8 had been submitted on 4 June,
HMRC might have been expected by this stage to have written to the agents
rather than to the Appellant; see our finding below.) They thanked the
Appellant for its letter dated 25 May 2010 appealing against the penalties for
the periods ending 02/10, 03/10 and 04/10. They explained that for the appeal
to succeed, the Appellant needed to demonstrate a “reasonable excuse for its
failure to submit the return [ie the respective returns] on time. HMRC’s view
was that a “reasonable excuse” was where an exceptional event beyond the
Appellant’s control had prevented the Appellant from making the return on time.
The officer had considered the appeal, but was unable to “accept” it because
HMRC had not received the returns for the appealed periods.
12. According to
HMRC’s records, the returns for 02/10, 03/10, 04/10 and 05/10 were received on
29 June 2010, and the return for 06/10 was received on 19 July 2010. (Our
findings in respect of the receipt of the returns are set out later in this
decision.) We find that, as HMRC accepted these returns from the agents at this
stage, the form 64-8 must have been received at some time between 4 June and 29
June, assuming in the agents’ favour that the processing of this form within
HMRC might have taken some time.
13. In their letter
dated 21 July 2010, the agents stated:
“Following your letter dated 22 June 2010, we
request a review of [sic] decision against the late filing of
contractor’s monthly returns for 02/10, 03/10 and 04/10 for the following
reasons:
1. Paper returns had already been submitted for
these periods by the due date.
2. Copies of these returns were submitted when
requested, but were rejected as they were our file copies and not originals.
All returns were duly re-completed and submitted by return.
3. Since receiving your letter, we have successfully
submitted the most recent return for month ending 5 July 2010 online and will
continue to do so in future.
. . .”
14. HMRC’s
conclusion on review, communicated in their letter dated 26 August 2010, was
that the decision in the letter dated 22 June 2010 should be upheld. The reason
was that the Appeal Review Officer could not find any evidence that the
Appellant’s CIS returns were submitted any earlier than 29 June 2010.
15. On behalf of the
Appellant, the agents gave Notice of Appeal to the Tribunal on 8 September
2010. The appeal was expressed as follows;
“We are appealing against non submission of CIS
contractor monthly returns for the periods ended 5/2/10, 5/3/10, 5/4/10, 5/5/10
and 5/6/10.”
(The grounds for appeal are set out below.)
16. Notice of appeal
in respect of the periods ended 5 May 2010 and 5 June 2010 had not previously
been given to HMRC. This meant that in this respect the appeal did not comply
with s 49D of the Taxes Management Act 1970 (“TMA 1970”). HMRC indicated in their
Statement of Case that they had accepted the Tribunals Service Notice of Appeal
form as fulfilling this requirement in relation to the appeal against penalties
for those two monthly periods. In the present case we accept this waiver of the
requirement, but appellants should be aware that giving notice of appeal to
HMRC is, as a formal matter, a precondition to giving notice to the Tribunal.
Arguments for the Appellant
17. The Appellant’s
agents stated that they had commenced representing the Appellant in January
2010 and had submitted paper returns each month by their respective due dates.
None of these were nil returns. They had retained copies for their records. All
CIS payments due for the relevant months had also been paid by their due dates,
although the agents accepted that this issue was not in question. The system
which they used to calculate the CIS liability each month included verifying
the amount payable to that shown on the return; one could not be done without
the other. They were at a loss to understand why the returns had not been
recorded as received by the Respondents (“HMRC”). Since the problem had been
brought to the agents’ attention, they had submitted returns on line. They had
also been asked to complete the paper returns again, which they had done. Copies
of the returns made had been submitted to HMRC when requested, but were
rejected, as they were the agents’ file copies and not originals. All the
returns had been duly re-completed and submitted by return.
18. They believed
that the decision should have been that HMRC should accept that all the CIS
returns were submitted by their due dates, that any penalties imposed should
now be removed, and that HMRC should further confirm that their annual review
would confirm full compliance with CIS requirements.
19. The agents’
internal records of posting showed that each return had been posted in advance
of the date due, ie before the expiry of 14 days after the return date. These
posting dates were, respectively, 10 February, 12 March, 15 April, 14 May and
17 June 2010. It was not cost effective for them to obtain proof of posting
from the Post Office for each item of post sent from their office.
Arguments for HMRC
20. HMRC contended
that their records showed that the first four returns were received on 29 June
2010 and the return for the month ending 5 June 2010 was received on 19 July
2010. The Appellant had neither provided HMRC with evidence of postage nor an
actual date when the returns were posted. Penalty notices had been issued, the
first on 5 March 2010 and then for each subsequent month, the last being on 2
July 2010. The penalty notices had clearly informed the Appellant that the
returns for the months ended 5 February, 5 March, 5 April, 5 May and 5 June
2010 were late and needed to be submitted. HMRC contended that it was
reasonable to conclude that the number and frequency of penalty notices issued
would have alerted the Appellant that something was wrong. HMRC had no records
of the Appellant contacting HMRC for advice.
Discussion and conclusions
21. Notice of Appeal
was originally given on 8 September 2010, which would have been within the time
limit following HMRC’s review letter dated 26 August 2010. However, the Notice
was not accompanied by a copy of that letter, and was therefore returned to the
agents by the Tribunals Service. Full documentation was submitted by the agents
by their letter dated 20 October 2010, which enclosed a revised version of the
Notice of Appeal. HMRC did not seek to make any objection to this on grounds of
delay in making the appeal, and we accordingly extend the period of time for
service of the Appellant’s Notice of Appeal.
22. In respect of
the substantive appeal, Regulation 4 of the Income Tax (Construction Industry)
Regulations 2005 (SI 2005/2045) provides:
“(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. . .”
We would emphasise that this obligation falls upon the
contractor, rather than upon its agents. Permission to make payments gross is a
privileged treatment, as the normal position is that contractors are required
to deduct tax; in order to benefit from that treatment, contractors are
required to comply with various obligations, including the proper submission of
monthly returns.
23. Chapter 4 of
HMRC’s Guide for contractors and subcontractors (CIS340) sets out HMRC’s
general requirements from contractors in relation to monthly returns and
payments of deductions due to HMRC. Paragraph 4.5 states in relation to paper
returns:
“If contractors choose to use paper returns, we will
send out the return forms partially completed to arrive by the last day (the
5th) of the tax month they are for.”
24. It follows from
this element of the guidance that HMRC need to be made aware that a contractor
proposes to make monthly returns in paper form, as HMRC would not be in a
position to issue partly completed forms without some prearrangement for the
relevant details to be included in those forms.
25. Although there
is no statement to this effect in CIS340, our understanding of HMRC’s practice
is that once a contractor is making returns electronically, paper returns are
not taken into account. The effect is to keep the two systems separate. Where a
contractor is making returns electronically, there is no reason for HMRC to
take into account or recognise any paper return sent in for a particular month
instead of an electronic one. We assume that this is to avoid the risk of
confusion; without giving appropriate notice, a contractor is not permitted to
switch between the two forms of return, so that a contractor within the
“electronic filing” regime is expected to continue within it unless and until that
clear notice of the proposed change to “paper filing” is given in time for HMRC
to send out the partially completed return for the particular month, as
referred to at paragraph 4.5 of CIS340.
26. In relation to
the Appellant, we find that confusion arose as a result of what turned out to
be a failure of communication. As we have found, there was no specific evidence
provided to us to show that notification of the new agents’ appointment had
been posted on 11 February 2010, and therefore we do not accept that this was
done. We have accepted HMRC’s evidence that their records did not contain any
information to show that any notification of the appointment had been received before
June 2010.
27. The result of
this failure of communication was that as far as HMRC understood the position
before the agents submitted the form on 4 June 2010, the Appellant had not
completed a form 64-8 authorising its newly appointed agents to deal with HMRC
in relation to the exchange and disclosure of information about the Appellant’s
CIS affairs. As a result both of the absence of notice of authority and HMRC’s
assumption that returns would continue to be filed electronically (because HMRC
had no reason to be aware of the appointment of the new agents or the proposal
to submit paper returns), the paper returns posted to HMRC by those new agents were
not treated as fulfilling the Appellant’s obligation to submit monthly returns
by the specified dates.
28. In addition, we
find that those paper returns could not have been partly completed by HMRC in
accordance with the practice referred to at paragraph 4.5 of CIS340, as HMRC
had not previously been notified of the proposal to use paper returns instead
of electronic filing. No copies of the returns were included in the
documentation supplied to us, but we conclude that the paper returns originally
sent to HMRC must have been prepared solely by the agents, with no details
inserted by HMRC.
29. Thus in relation
to the agents’ attempted submission of monthly returns, we are satisfied that
the returns for the first four periods were submitted by the agents at times
when HMRC had no notice that the agents had been appointed in place of the
previous agents. The return for 06/10 was shown in the agents’ internal records
as having been posted on 17 June 2010, the due date being 19 June 2010.
However, according to HMRC’s records, it was not received until 19 July 2010. No
explanation was offered to us for the late submission of the latter return. In
the absence of specific evidence to the contrary, we find that the date of
receipt as shown by those records was correct.
30. Although the
agents stated in their response to HMRC’s Statement of Case that copies of all
previously filed CIS returns were submitted and then rejected by HMRC as not
being originals, there is nothing in the evidence before us to establish on
what date these copies were submitted, nor any indication of the date or dates
on which the “re-completed” forms were submitted to HMRC, the agents having
explained that this had been done “by return post”.
31. Even if HMRC had
been aware of the proposal to submit paper returns, copies would not have been
acceptable. Paragraph 4.7 of CIS340 states:
“The returns must be sent to us unfolded using the
envelope we provide. Please ensure that you pay the correct postage for the
returns. Please do not send a photocopied return.”
The combination of submission of paper returns without
effective prior notification and the subsequent submission of photocopy paper
returns meant that the first valid submission of returns did not happen until
the properly completed and signed replacement versions were submitted to HMRC.
As a result, we accept as correct HMRC’s evidence of the dates of receipt of all
the returns as shown in their records (paragraph 12 above).
32. The first
penalty notice in respect of the month ended 5 February 2010 had been issued by
HMRC on 5 March 2010. Until this was received by the Appellant, there was no
reason for the Appellant to suspect that there was any problem with its present
agents seeking to submit the monthly returns on its behalf in exactly the same
way as had been done through its previous agents. We therefore hold that the
Appellant initially had a reasonable excuse for the failure to file on time the
monthly return for the period ending 5 February 2010.
33. We find that
once the Appellant had received the first penalty notice, it became aware that
the process of submitting monthly returns had not operated as it should have
expected. At this point the Appellant should have contacted its agents to ask
why the problem had arisen. There was no evidence of the Appellant having done
so in March 2010; we find that the Appellant did not do this until shortly
before the agents’ letter to HMRC dated 25 May 2010.
34. Section 118(2) TMA
1970 (which applies for the purposes of s 98A TMA 1970, which in turn imposes
penalties for failure to make monthly CIS returns) provides:
“. . . where a person had a reasonable excuse for
not doing anything required to be done he shall be deemed not to have failed to
do it unless the excuse ceased and, after the excuse ceased, he shall be deemed
not to have failed to do it if he did it without unreasonable delay after the
excuse had ceased.”
In the context of monthly CIS returns, this gives the
contractor the opportunity to put matters right by taking swift action to
ensure that a return in the proper form reaches HMRC as soon as possible after
the contractor’s reasonable excuse has come to an end.
35. As there was a
delay from March 2010 until later May 2010, our finding on the facts is that the
Appellant did not take steps without unreasonable delay to resolve the matter
after the initial excuse ceased (as a result of the Appellant finding out that
the return for the period ending 5 February 2010 had not been accepted as
having been filed on time). The excuse ceased as soon as the Appellant had
notice from HMRC that the return had not been received in the proper way.
36. With the
exception of the period covered by the initial penalty, we therefore find that
the Appellant had no reasonable excuse for the late submission of the monthly
returns. We have no power or discretion to alter any of the penalties imposed. As
a result, we hold that all the penalties in respect of the return for that
period, other than the initial penalty, should be confirmed. We further hold
that in the absence of a reasonable excuse in respect of the four subsequent
monthly returns, the penalties in respect of these should also be confirmed.
Thus the total amount of penalties imposed on the Appellant should be reduced
from £1,500 to £1,400.
37. Accordingly, we
dismiss the appeal in respect of all the penalties other than the initial
penalty of £100 in respect of the period ended 5 February 2010.
Right to apply for permission to appeal
38. 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 CLARK
TRIBUNAL JUDGE
RELEASE DATE: 9 MAY 2011
