Appeal Number: TC/09/16378

[2011] UKFTT 184 (TC)

TC01053

Appeal number: TC/09/16378

Income Tax - Gross Construction Industry Status – whether status should be withdrawn – whether reasonable excuse for failing to meet obligations under section 66(1)(c)Finance Act 2004 – Appeal dismissed.

FIRST-TIER TRIBUNAL

TAX

WILLIAM BEGBIE JUNIOR

T/A READY STEADY LABOURERS Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMSRespondents

TRIBUNAL JUDGE:W RuthvenGemmell, WS

Sitting in public in Edinburgh on 15 December 2010 and 1March 2011

William Begbie Senior, for the Appellant at 15 December 2010 sitting

Colin Vallance, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents at both sittings

DECISION

The Appeal

1.The Appellant, William Begbie Junior trading as Ready Steady Labourers (“RSL”) appealed against their withdrawal and cancellation of Gross Construction Industry Statussections 66 and 67 of the Finance Act 2004.

2.The Hearing initially took place on 15 December 2010. At that Hearing, RSL stated that they had evidence that the required returns had been made on time and that the Respondents (“HMRC”) had mixed up RSL with William Begbie Senior who traded under a similar name.

3.William Begbie Senior represented William Begbie Junior at the Hearing. No evidence was produced and RSL’saccountant was unable to attend the Hearing as he was “snowed in” at his home.

4.HMRC could produce no evidence that there had not been a mix up in respect of these returns. Accordingly, the Hearing was adjourned to 4 February 2011 to allow both partiesto provide evidence. A Direction was also made to RSL to ensure they were familiar with thecontent of the information leaflet printed by the Tribunal Service in relation to Hearings and to contact the Tribunal Service by early January if they had any points they wished to raise about this or did not understand.

5.RSL requested a furtheradjournment and this was set for 1 March 2011. In doing so, the Tribunal took account of HMRC’s concern that the matter was heard without undue further delay.

6.At the Hearing on 1 March, RSL were not represented either by William Begbie Senior or Junior or by RSL's accountant or any other representative.

7.In consideration ofparagraphs (a) and (b) of Rule 33 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, the Tribunal decided to proceed with the Hearing.

8.The Construction Industry Scheme was introduced in its current form from 6 April 2007 whereby a sub-contractor receives gross payments from a contractor without any deduction being taken from the payment.

9.Participants in the Scheme are subject to a review of sub-contractor’s compliance records by HMRC once a year by running “ascheduled review” which is an automated check on whether the sub-contractor has complied with all their tax obligations as a tax payer including if appropriate, as an employer or a contractor.

The Legislation

10.Finance Act 2004 provides:-

Section 66Cancellation 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 1 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).

The Facts and Submissions

11.HMRC said that RLS failed a scheduled review carried out on 17 March 2009 for the following reasons:-

a)The 2007/2008 tax return issued on 6 April 2008 had not been received by HMRC. This return was due by 31 October 2008 if submitted by paper and 31 January 2009 if submitted electronically. The return was initially received on 22 April 2009 but returned to RSL as it was incomplete on 8 May 2009. It had still not been received by HMRC at the date of the Hearingon 1 March 2011; and

b)Contractor’s monthly returns due on 19 July, 19 August, 19September, 19 November and 19 December 2008 were not received timeously.

12.HMRC issued a letter on 24 March 2009 detailing the compliance failures and advising the Appellant that the status would be changed from “gross to payment under deduction” with effect from 90 days from the date of the letter and so would cancel registration for gross payment.

13.RSL appealed on 29 April 2009 giving the grounds for appeal that the tax return and contractor’s returns had gone astray and that if the gross status was removed RSL would have no choice but to cease trading.

14.HMRC called RSL’s representative on 19 June 2009. The representative said that she would look into the matter of the Appellant’s personal tax return and sent the contractor’s returns due between 19 July and 19 December to HMRC between 2 April and 21 June 2009.

15.HMRC’s debt management department issued a statement that they had checked the records and ascertained that no payments were held under the alleged incorrect references as claimed by RSL but indicating that one payment had been moved to a correct reference on 4 December 2007.

16.In order to ascertain whether any further payments had been made HMRC requested cheque numbers, account numbers, sort codes and dates of payment in order to try and trace any such payments.

17.HMRC carried out a review on 15 October 2009 and confirmed that RSL had not complied with their tax obligations during the qualifying period for the scheduled review as required under Schedule 11 of the Finance Act 2004 and that the failures identified by the scheduled review did not fall under those which can be disregarded under Regulation 32 (Statutory Instrument 2005/2045) or Regulation 2 (Statutory Instrument 2008/1282).

18.On 2 December 2009, a decision letter was issued by HMRC and this was appealed by RSL. In HMRC’s view the grounds of appeal did not constitute a reasonable excuse as to why tax obligations, namely the 2007/2008 Self Assessment tax return for William Begbie Junior which had not been completed norsubmitted correctly and five late Construction Industry Scheme monthly returns, were not met.

19.Evidence was given by William Begbie Senior at the Hearing on 11 December and by Chris Valance of HMRC. Both witnesses were credible.

Decision

20.Taking all the circumstances into account and while being sympathetic to the consequences of the current economic climate, no evidence was produced to justify a reasonable excuse for failing to meet the tax payer’s obligations which are required to retain registration for gross payment under the Construction Industry Scheme. Accordingly, the appeal is dismissed.

21.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.