Piers Consulting Ltd v Revenue & Customs [2011] UKFTT 613 (TC) (20 September 2011)
[2011] UKFTT 613 (TC)
TC01456
Appeal number: TC/2010/8105
Construction
Industry Scheme. Compliance failures: held no reasonable excuse. Did HMRC have
a discretion under section 66FA 1994: John Scofield TC 1068 applied. HMRC’s
decision void. Appeal allowed
FIRST-TIER TRIBUNAL
TAX
PIERS
CONSULTING LTD Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL:
CHARLES HELLIER (TRIBUNAL JUDGE)
RICHARD
CORKE
Sitting in public in Cardiff on 10 January 2011
Gwydion Hughes, counsel, for
the Appellant
Dave Lewis for the Respondents
© CROWN COPYRIGHT
2011
DECISION
1. Introduction
1. Pier
Consulting appeals against a decision made by HMRC to withdraw its gross
payment status under the construction industry scheme.
2. The
decision against which the Appellant appeals was dated 10 September 2010. The
Appellant’s Notice of Appeal was dated 8 October 2010 but received by the
tribunal on 19 October 2010 and was therefore received outside the time limit
for making an appeal. Mr Lewis indicated that the Respondents accepted that
the Notice of Appeal had been posted on 8 October 2010. We decided to extend
the time for making this appeal in these circumstances accordingly to admit the
Notice of Appeal.
3. In
outline, HMRC withdrew gross payment status because the company was late in
paying its corporation tax for the period ended 31 December 2008.
4. At
the hearing Mr Hughes agued that the Appellant had a reasonable excuse for the
delay in its payment, that the failure to pay on time should therefore be
ignored, and that as a result the Appellant should be treated as not having
breached the compliance tests for CIS status.
5. Another
issue arose. The statutory provision relating to the withdrawal of gross
payment status indicates that HMRC ‘may’ withdraw such status if the taxpayer
breaches the compliance conditions, rather than that it ‘shall’ do so. That
appeared to confer a discretion on the HMRC. But Mr Lewis told us that HMRC
did not exercise a discretion: if there was a compliance failure which was not
reasonably excused then gross payment status was automatically withdrawn. That
raised the questions as to whether and how a failure by HMRC to examine any
discretion affected the jurisdiction of the tribunal in the appeal. At the
hearing we undertook to consider these issues in our decision.
6. After
the hearing we became aware that a differently constituted tribunal were
considering the same issues in the case of John Scofield TC/2010/04709 TC1068.
In that case there had been full argument on the issues. We decided to delay
the release of our decision until the decision in that case had been
published. When it was we sought the representations of the parties on it.
7. In
this decision we address first the question as to whether the Appellant had a
reasonable excuse for its failure to pay corporation tax on time, and then the
issue of the jurisdiction of the tribunal in relation to the failure by HMRC to
address any discretion which might be given to it under the legislation.
The statutory Provisions
8. Chapter
3, part 3 Finance Act 2004 contains the provisions for the Construction
Industry Scheme. Under the scheme certain payments to sub contractors must be
made under deduction of tax unless the subcontractor is registered for gross
payment. Section 63(1) provides that the Board must register a person for
gross payment if it is satisfied that certain conditions have been met.
9. Among
those conditions are those in Part 3 of Schedule 11 to the Act which include,
in paragraph 12 of that schedule, the requirement that the company has complied
with all obligations imposed on it by the Taxes Act within the preceding twelve
months. That strict requirement is mitigated by provisions in regulations, the
Income Tax (Construction Industry Scheme) Regulations 2005 (the “CIS
Regulations”) which permit certain failures to be ignored, and by para 12(3) of
those Regulations which declares that a company is to be treated as having
complied notwithstanding an actual failure, if:
“(a)the company had a
reasonable excuse for the failure to comply, and
(b) if the excuse ceased, it
complied….without unreasonable delay after the excuse ceased” .
10. Section 66
provides that the Board “may at any time make a determination cancelling a
person’s registration” if it appears to them that if an application to register
for gross payment was to be made at that time the Board would refuse to
register the company.
11. Among the
provisions of the Taxes Act with which compliance is required is that in
section 59D TMA which requires corporation tax for an accounting period to be
paid on the day following the expiry of nine months from the end of the period.
12. Section 67 FA
2004 permits an appeal to the tribunal against the cancellation of registration,
and in subsection (4) provides that the jurisdiction of the tribunal on such an
appeal “shall include jurisdiction to review any relevant decision“ of the
Board under section 66.
The Facts
13. We had before us
a bundle of correspondence between HMRC and the Appellant and heard oral
evidence from Stephen Turner, the Appellant’s accountant from January 2001, who
provided a witness statement, and from Phillipa George, the Managing Director
of the Appellant who also provided a witness statement. We find the facts set
out below.
14. The Appellant
conducts the business of a recruitment agency specialising in the construction
sector. It has eight full time members of staff and about 60 contract staff.
The Appellant’s customers are large companies which insist upon the Appellant
having gross payment status. The removal of such status would result in its
customers going elsewhere. Its business would be seriously adversely affected.
15. The company
employs a book-keeper without formal accounting qualifications and engaged the
independent help of a qualified accountant to oversee its accounting and
compliance. It was clear that the Appellant took its statutory obligations
very seriously and strove to ensure compliance with them. That was why it
employed an external qualified accountant.
16. Until the
beginning of December 2009 the company had engaged Rhianna Wilcox to perform
this oversight role. She fulfilled the duties which would have been performed
by a Finance Director. She was responsible for checking the Sage accounting
system, and NI and VAT returns; she prepared quarterly accounts and statutory
accounts; she prepared annual returns; she was responsible for the corporation
tax returns and payments; and she attended meetings with the company’s bank and
other meetings.
17. Ms Wilcox was a
qualified accountant in private practice. She also acted for a number of other
companies. In late 2009 one of those companies offered her a full time
position as Finance Director. She accepted, and in or around late November
informed the Appellant that she would cease to act for it.
18. The Appellant
set about finding a new accounting practice to replace Ms Wilcox. In January
2001 it appointed Stas Ltd., whose principal was Mr Turner. Mr Turner also
took over responsibility for another 30 or so companies from Ms Wilcox. He
had a meeting with Ms Wilcox in early December 2009 at which he was given contact
and other details for these companies and some details of the status of their
accounting affairs including a file of correspondence finishing in mid 2009.
19. The Appellant’s
year end is 31 December. The accounts for the period to 31 December 2008 were
prepared by Ms Wilcox. The corporation tax return was prepared and submitted
by Ms Wilcox during 2009. The return disclosed a corporation tax liability of
£6,707.26. (The due date for payment was thus 1 October 2009).
20. No payment in
respect of this liability was made until June 2010.
21. After Ms Wilcox
accepted the full time position in late November 2009 the directors of the
Appellant had difficulty contacting her. Their attempts to get in contact were
unsuccessful. However, she told them at about the time of her departure that
everything was up to date.
22. When Mr Turner
started his duties for the Appellant in January 2010 he examined the Sage
accounts and noted that no outstanding liability was shown for corporation
tax. He concluded that its liability for the year to 31 December 2008 had been
paid. He was mistaken; the liability had not been entered on the system and
had not been paid.
23. Mr Turner told
us that there had been problems with late filings in relation to a number of
the other companies he had taken over from Ms Wilcox.
24. When HMRC wrote
to the Appellant in April 2010 cancelling its gross payment registration, it
cited the failure to pay corporation tax for the year to 31 December 2008.
This came as a shock to the directors and to Mr Turner who hitherto had
believed that Ms Wilcox had arranged the payment of the tax.
25. The Appellant
changed its business address in March 2009 from Sycamore House to The Business
Centre. Mrs George told us, and we accept, that she believed that Ms Wilcox
had sent notification of the change to HMRC and Companies House. After the
move, however, it appears that reminders from HMRC were not received by the
Appellant.
Discussion
26. Corporation tax
for the year to 31 December 2008 was due on 1 October 2009. The first question
for us whether there was a reasonable excuse for the failure to pay by that
date.
27. It was plain
that in the period from 1 October 2009 to December 2009 the Appellant was
relying upon Ms Wilcox to organise the payment of its tax. The Company will
have a reasonable excuse for its failure only if it had such an excuse both in
that period and for the period from December 2009 to the time of its eventual
payment. We therefore consider first whether it had such an excuse in that
earlier period. In that connection the events after Ms Wilcox’ departure are
relevant only to the extent that they cast light on the earlier period.
28. There was little
evidence before us which directly related in the earlier period other than that
showing that the company relied upon Ms Wilcox at that period. What evidence
there was suggested that it was likely that Ms Wilcox began to lose her grip on
the affairs of the company and became perhaps preoccupied with the affairs of
her new employer. There was no evidence which suggested any other reason for
her failure to arrange payment of the corporation tax liability: no evidence
that she had been ill or urgently distracted by other matters.
29. The question is
therefore whether the simple fact of the Appellant’s reliance on Ms Wilcox
offers is a reasonable excuse for its failure.
30. The VAT Act 1994
provides that when a person has a reasonable excuse for a default it may be
disregarded, but it provides in s71 that where reliance is placed on another
person to perform a task neither the fact of that reliance nor any dilatoriness
or inaccuracy on the part of that person is a reasonable excuse. This carve
out it makes it clear that if reliance is placed on another person there must
be something other than the reliance for them to be a reasonable excuse. The
absence of that carve out from para 12(3) of the CIS provisions raises the
question as to whether mere reliance on another person can for this purpose be
a reasonable excuse.
31. In our view the
difference between the provisions does not indicate that reliance on another
person will always constitute a reasonable excuse for the purposes of the CIS
regulations. What is required by para 12(3) is an appreciation of whether, in
all the circumstances, there was a reasonable excuse. The reasonableness of
the reliance, and the circumstances of the failure will be relevant to that
determination.
32. In the
Appellant’s case it was, in our view reasonable for it to rely upon Ms Wilcox
in the period up to the end of November 2009. She was a qualified accountant
and in previous periods had shown herself capable and organised. There was
nothing to suggest that she had become unreliable in this period.
33. But there was no
explanation for Ms Wilcox’ failure. She may simply have overlooked the matter.
34. With some
hesitation we find that on balance the Appellant did not show that it had a
reasonable excuse for its failure. The Appellant adopted a careful and serious
approach to its obligations. It appointed a properly qualified capable
person. It had no inkling that that person was not performing properly. But
the circumstances of Ms Wilcox failure were not explained.
35. After Ms Wilcox
departure the Appellant remained ignorant of its failure to have paid the tax
until it received notice of the cancellation of its gross payment status. In
the period it took reasonable steps to ensure compliance: it appointed Mr
Turner and he checked its Sage accounting system. In our view any excuse
created by Ms Wilcox’ failure would have continued until the receipt of the
notice of cancellation and was rectified with reasonable promptness after that
date.
36. In reaching this
conclusion we have ignored the facts:
(1)
that the company had hitherto been fully compliant,
(2)
that when the failure to pay was discovered it was put right speedily,
and
(3)
that the cancellation of CIS gross payment registration would have
serious results for the company.
These facts do not seem to us to affect the question of
whether or not the company had a reasonable excuse for its failure.
37. We were told
that the company was not sent any notice reminding it of its obligation to pay
or notify it of its default. It seems to us that a notification of default
given after the default can have no bearing on whether there was a reasonable
excuse for the default and that not receiving a reminder does not give rise
(particularly for a company with professional advisers) to a reasonable excuse.
Escape under the CIS Regulations?
38. Regulation 32 of
the CIS Regulations permits a failure to pay corporation tax to be disregarded
if the payment is made not later than 28 days after the due date. The payment
was considerably later than this. The paragraph cannot therefore apply to
afford relief.
A discretion: the tribunal’s jurisdiction
(a) a discretion
39. Section 67
provides for appeals against both the refusal of an application for gross
payment registration and against the cancellation of such registration.
40. The provisions
for the grant of registration in section 63 differ from those for cancellation
in section 66 in one important respect. Section 63 says that if the Board are
satisfied that the conditions in section 64 are met “the Board must
register” the person for gross payment. Section 66, by contrast, says that if
it appears to the Board that one of the conditions in section 66(1) is met then
the Board “may” make a determination cancelling such registration.
41. The contrast
between “may” and “must” suggests that the Act gives a discretion to the Board
as to whether or not to cancel registration if the conditions are met. In John
Scofield TC 1068 the tribunal held that section 63 did indeed confer a
discretion. We agree.
42. Mr Lewis
suggested that “may” in section 66 referred to the possibility that the
taxpayer had a reasonable excuse. We do not agree. Whether or not there is a
reasonable excuse affects whether the compliance condition is satisfied. If
there is a reasonable excuse there is no compliance failure and HMRC cannot
cancel registration. If there is no reasonable excuse there is a compliance
failure and HMRC “may” cancel registration.
(b) Jurisdiction
43. If HMRC have
failed to exercise a discretion, the question arises as to whether or not the
tribunal has jurisdiction to do anything about it.
44. Section 67(4)
provides that the jurisdiction of the tribunal hearing the appeal shall
“include jurisdiction to review” any decision of the Board in the exercise of
their functions under section 63 to 66. The word “include” suggests that the
tribunal’s function may not be limited to such a review.
45. In Hudson v
JDC services Ltd [2004] STC 834, Lightman J considered the jurisdiction
given to the Special Commissioners by section 561(9) TA 1988 in relation to the
refusal by the Inland revenue of a certificate for gross payment under the
predecessor of the current CIS regime. That regime provided:
(1)
in section 561(2) that the Board “shall” issue a certificate to a person
if specified conditions (similar but not identical to those in section 63) were
satisfied;
(2)
in section 561(8) that the Board “may at any time cancel a
certificate” if it appeared to them that certain conditions (again similar but
not identical to those in section 66 ) were satisfied; and
(3)
in section 561(9) that a person could appeal against the refusal of a
certificate or its cancellation and that on such an appeal the jurisdiction of
the Special or General Commissioners “ shall include jurisdiction to review any
relevant decision taken by the Board in the exercise of their functions under
[that] section”.
Thus the differences between the mandatory requirement to
grant a certificate and the discretionary power to cancel it if conditions were
satisfied existed in the previous legislation and parallel the “must” and “may”
in the current legislation; and the words describing the tribunal’s
jurisdiction are for all intents and purposes identical.
46. Lightman J held
that the legislative history and the statutory context indicated that full
appellate jurisdiction was conferred on the tribunal entitling it to substitute
its own judgement for that of the Board. The legislative history showed that in
1975 the tribunal was restricted to reviewing the exercise of the Board’s
function but had been excluded from considering the question of whether or not
the conditions had been fulfilled. This restriction was lifted in 1980.
Lightman J said:
“In my judgement it is unlikely that the [1980] amendment
was merely intended to vest in the [tribunal] a power of supervision…equivalent
to that exercisable by the Court on judicial review…”
47. In relation to
the statutory context he said that it supported the conferment on the tribunal
of full appellate jurisdiction for the following reasons:
“(a) the statutory context is a subsection conferring
full appellate jurisdiction on the commissioners which is to “include”
jurisdiction to review a decision on entitlement to a CIS certificate;
“(b) the decision of the Revenue under appeal does not
involve the exercise of discretion. Statutory rules regulate how the power to
grant CIS certificates is to be exercised. What is required of the Revenue is
to apply the statutory criterion. There is no reason why the commissioners
should not on appeal undertake the same exercise;
“(c) the decision of the Revenue, an administrative body,
to refuse the grant has far reaching implications for the applicant;
“(d) the conclusion which I have reached accords with
that of Goulding J in Lothbury Investment Corp Ltd v IRCI [1979] STC
772. [1981] Ch 47.”
48. We note that in
reason (b) Lightman J appears to disregard the discretionary provision in
section 561(8) which said that the board “may” cancel a certificate. But in the
case before him the issue related to section 561(2), the grant of a
certificate, and there was no discretion afforded under that subsection.
49. It seems to us
that it is clear that in relation to the question of whether or not the
conditions for registration in section 63, or for cancellation in section 66
are met, the tribunal has a full appellate jurisdiction.
50. In relation to
an appeal against a refusal to register the tribunal must consider the evidence
and determine whether those conditions are met. That exercise will determine
the matter. There is no further question to be asked. If the tribunal decides
that the conditions are met, the person must be registered.
51. In relation to
an appeal in relation to the cancellation of a certificate there remains the
question of the exercise of the Board’s discretion under section 66. The
questions which arise in relation to our jurisdiction are (a) whether the
tribunal has the power to consider the exercise of that discretion, (b) if it
has such a power whether it is entitled to substitute its judgment as to the
proper exercise of that power for that of the Board, or whether it is merely
required to determine, in a manner similar to that on a judicial review,
whether the discretion has been “reasonably” exercised or exercised at all, and
(c) if it has that power and decides that the discretion has not been so
exercised (or exercised at all) whether it must remit the decision to be made
again by the Board, or must simply allow the appeal.
52. It seems to us
that the answer to the first question is that the tribunal has the power to
consider the exercise of the discretion. The words of section 67(4) are clear:
the tribunal’s jurisdiction includes a power to review any relevant decision of
the Board in the exercise of its functions under section 66. One of those
functions is deciding to cancel a certificate. The tribunal can therefore
review that decision.
53. The answer to
the second question is less clear, but it seems to us that our jurisdiction in
this respect is limited to upholding or striking down the decision. That is for
the following reasons:
(1)
Lightman J says, in relation to the legislative history that it was
unlikely that the [1980] amendment was “merely” intended to provide for a Wednesbury
type judicial review. But the extension of the jurisdiction effectively to
consider the question as to whether or not the conditions were fulfilled leaves
the possibility that a review jurisdiction was at least retained in relation to
the exercise of any discretion;
(2)
Lightman J’s discussion in subpara (b) of his reasons reveals that his
decision as to full appellate jurisdiction was in the context of the operation
of the statute where there was no discretion. It is clear that he regarded the
presence of any statutory discretion as being at least potentially indicative
of a limited jurisdiction, and also clear that his decision as to full jurisdiction
does not determine the tribunal’s jurisdiction in an appeal against the
cancellation of a certificate (or thus of registration);
(3)
Although, as Lightman J notes at [20] a “review” jurisdiction may
encompass a full appellate jurisdiction, the use of the phrase “include
jurisdiction to review” indicates to us that a review should be something in
addition to a full appellate consideration of the operation of the relevant
conditions. Indeed Lightman J recognises this possibility in his reason (a);
(4)
Where a discretion is conferred by statute there is some recognition
that there may be policies developed by the body to which the power is given
which may influence the exercise of that power. A body given a power may
rightly take into consideration the need to act fairly as regards a wide body
of taxpayers. The development of such policies would be precluded if the
tribunal had the jurisdiction to substitute its own. The issues in relation to
CIS certificate are ones in which it would be reasonable to suppose that such
policies could be applied.
54. So far as the
third issue is concerned it seems to us that the proper outcome of an appeal is
that it should be allowed or dismissed, and that an express power would be
needed for the tribunal to remit a decision to be remade (a power along the
lines of that in section 16(4) FA 1994 for example). We conclude that if we
were to determine that the discretion had not been properly exercised then we
should allow the appeal.
(c) Was there an exercise of a discretion in this case?
55. Mr Lewis told us
that the Board did not give any separate consideration to the question of
whether, if the conditions for deregistration were satisfied, it should proceed
to deregister a person. If the conditions were satisfied deregistration
followed automatically. We concluded that such had been the case in the
Appellant’s circumstances. The approach taken by HMRC was also evidenced in a
note of a telephone call on 21 September 2010 made by Andy Simpson of HMRC’s
Appeals and Revenue unit. He said that “unfortunately the legislation did not
permit him to reach any conclusion other than to uphold the decision”.
56. After we sought
the parties representations in relation to the John Scofield decision,
HMRC wrote to explain that they had now amended their procedures, but offered
no new evidence in relation to this case.
57. It seems to us
that there was no a proper exercise of the power given to the Board by section
66. Where a power is given, a decision on whether or not to exercise it must be
taken on the facts of the case. This the Board did not do.
58. Whether or not
HMRC were entitled to decide to withdraw gross payment status we find that this
decision to do so was void.
Conclusion
59. We allow the
appeal
Rights of appeal
60. 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.
CHARLES HELLIER
TRIBUNAL JUDGE
RELEASE DATE: 20 SEPTEMBER 2011
