[2010] UKFTT 483 (TC)

TC00743

Appeal number: TC/2010/04073

Construction Industry Scheme—Penalties for late submissions of returns (Taxes Management Act 1970 s.98A)—Whether partner of Appellant firm had a “reasonable excuse” (Taxes Management Act 1970 s.118)—Appeal allowed in part

FIRST-TIER TRIBUNAL

TAX 

	MR TOBY TURNER	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

		TRIBUNAL:	Dr Christopher Staker (TRIBUNAL JUDGE)					MRS C E FARQUHARSON (TRIBUNAL MEMBER)

Sitting in public in Colchester on 24 August 2010

The Appellant in person

Mr H O’Leary, HMRC Presenting Officer, for the Respondents

© CROWN COPYRIGHT 2010

DECISION
Introduction
1.	This is an appeal against 22 penalties totalling £2200 imposed on the Appellant under s.98A(2)(a) of the Taxes Management Act 1970 (the “TMA”) for late provision of monthly returns under the Construction Industry Scheme (“CIS”) in respect of the months ending 5 April 2009 to 5 July 2009 inclusive.
The relevant legislation
2.	Section 70 of the Finance Act 2004 states in relevant part as follows:
(1)	The Board of Inland Revenue may make regulations requiring persons who make payments under construction contracts—
(a)	to make to the Board, at such times and in respect of such periods as may be prescribed, returns relating to such payments; ...
3.	Section 98A of the TMA states in relevant part as follows:
(1)	... regulations under section 70(1)(a) ... of the Finance Act 2004 (sub-contractors) may provide that this section shall apply in relation to any specified provision of the regulations.
(2)	Where this section applies in relation to a provision of regulations, any person who fails to make a return in accordance with the provision shall be liable—
(a)	to a penalty or penalties of the relevant monthly amount for each month (or part of a month) during which the failure continues, but excluding any month after the twelfth or for which a penalty under this paragraph has already been imposed, ...
...
(3)	For the purposes of subsection (2)(a) above, the relevant monthly amount in the case of a failure to make a return—
(a)	where the number of persons in respect of whom particulars should be included in the return is fifty or less, is £100, and
(b)	where that number is greater than fifty, is £100 for each fifty such persons and an additional £100 where that number is not a multiple of fifty.
4.	The Income Tax (Construction Industry Scheme) Regulations 2005, SI 2005 No 2045 (the “Regulations”), regulation 4, made pursuant to s.70 of the Finance Act 2004, provides in relevant part as follows:
(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 or payments which would be contract payments but for section 60(4) of the Act (contract payments: exceptions), ... 
...
(10)	If a contractor who has made a return, or should have made a return, under this regulation makes no payments under construction contracts in the tax month following that return, the contractor must make a nil return not later than 14 days after the end of that tax month. This is subject to paragraph (11). 
(11)	Paragraph (10) does not apply if the contractor has notified the Commissioners for Her Majesty's Revenue and Customs that the contractor will make no further payments under construction contracts within the following six months.
(12)	Subject to paragraph (13), section 98A of TMA (special penalties in the case of certain returns) applies to the requirements in—
(a)	paragraph (1), ... 
(13)	A penalty under section 98A of TMA in relation to a failure to make a return in accordance with paragraphs (1) or (10) arises for each month (or part of a month) during which the failure continues after the 19th day of the sixth month following the appointed day.
5.	For the purposes of the Regulations, “tax month” is defined in regulation 2 of the Regulations to mean “the period beginning on the 6th day of a calendar month and ending on the 5th day of the following calendar month”.
6.	Section 100(1) of the TMA states in relevant part as follows:
(1)	... an officer of the Board authorised by the Board for the purposes of this section may make a determination imposing a penalty under any provision of the Taxes Acts and setting it at such amount as, in his opinion, is correct or appropriate.
7.	Section 100B(2) of the TMA states in relevant part as follows:
(2)	... on an appeal against the determination of a penalty under section 100 above section 50(6) to (8) of this Act shall not apply but—
(a)	in the case of a penalty which is required to be of a particular amount, the First-tier Tribunal may—
(i)	if it appears that no penalty has been incurred, set the determination aside,
(ii)	if the amount determined appears to be correct, confirm the determination, or
(iii)	if the amount determined appears to be incorrect, increase or reduce it to the correct amount,
8.	Section 118(2) of the TMA provides as follows:
(2)	For the purposes of this Act, a person shall be deemed not to have failed to do anything required to be done within a limited time if he did it within such further time, if any, as the Board or the tribunal or officer concerned may have allowed; and 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.
The evidence and submissions of the parties
9.	The Tribunal has considered all of the material before it, including the Appellant’s grounds of appeal and supporting evidence as well as the evidence given by the Appellant in person at the hearing.  The Tribunal has also considered the evidence and submissions on behalf of HMRC.
10.	The Appellant’s case, as elaborated by him in person at the hearing, is that from the age of 16 until about a year and a half ago he was always PAYE employed.  About a year and a half ago, in April 2009 he became self-employed.  He is in a civil engineering business and employs one subcontractor.  The Appellant affirmed that he took no issue with the details presented by HMRC of the dates that his CIS monthly returns were filed for the months ending 5 April 2009 to 5 July 2009 inclusive, or with the amounts of penalties that would be applicable in respect of these late filings in the event that he did not have a reasonable excuse.  He agreed that the only issue he was taking in this appeal was his contention that he had a reasonable excuse for the late filing.
11.	The Appellant said that at the time he became self-employed in April 2009, he did not know much at the time about self-employment, and engaged an accountant’s services for which he paid £55 per month.  He was deducting tax at source from amounts he paid to his subcontractor, but was unaware that he was required to file monthly returns.  He asked his then accountant about this, and his then accountant said that he should wait to be contacted by HMRC.  Eventually, dissatisfied with the service he was receiving from these accountants, he changed to new accountants.  The new accountants sorted out his tax affairs, including submission of his CIS monthly returns backdated to April 2009.  However, once this was done, HMRC imposed the £2,200 penalties for the late filing of the returns.  The Appellant said that he had been deducting tax at source from payments to his subcontractor and had not been seeking to avoid paying the tax.  He said that he would have done so immediately if he had known, and that he did do so immediately once he knew that he was required to do so.  
12.	Mr O’Leary presented the case for HMRC.  The HMRC case is set out in the HMRC statement of case.  In the course of the hearing, the following matters also emerged.  The Appellant’s new accountants wrote to HMRC on 29 August 2009, although HMRC cannot produce a copy of that letter.  HMRC records indicate that paper returns for completion were then sent to the Appellant on 6 October 2009.  Although Mr O’Leary could not be certain, he said that the paper returns might have been sent in response to the letter from the accountants of 29 August 2009.  HMRC records indicate that the Appellant’s contractor activity was registered with HMRC with a start date during the period ending 5 August 2009, and that on 6 October 2009 the start date for this contractor activity was changed to 5 April 2009.  It is because of this that on 6 October 2009 paper returns were issued for the periods ending 5 April 2009 to 5 July 2009.
13.	Mr O’Leary acknowledged that prior to 6 October 2009, the Appellant would not have been able to file his returns for the months ending 5 April 2009 to 5 July 2009, because it was only on 6 October 2009 that the start date for this contractor activity was changed to 5 April 2009.  Prior to 6 October 2009, his contractor activity was registered as having a start date during the period ending 5 August 2009, so that the HMRC computer system had not previously generated paper returns for the months ending 5 April 2009 to 5 July 2009, and the HMRC computer system would not previously have accepted an online return for those months.  However, Mr O’Leary said that it should have been possible for the returns for those months to be filed online on or soon after 6 October 2009.
14.	HMRC records further show that on 22 October 2009 a telephone call was received from the Appellant’s accountants, such that replacement paper returns for the months 5 April 2009 to 5 July 2009 were issued on that day by HMRC.  Mr O’Leary was unable to provide further details as to what had necessitated this.  Ultimately, the returns for those months were filed online on 26 October 2009.  Mr O’Leary was again unable to provide details of why they were filed online when paper returns had been sent twice.  The Appellant himself said that he did not know as his accountant was looking after the matter.   
Findings
15.	The Tribunal has considered all of the information and arguments before it, even where not expressly referred to in this decision.  
16.	On the basis of the evidence and information before it, the Tribunal finds that the Appellant's monthly CIS returns in respect of the months ending 5 April 2009 to 5 July 2009 inclusive were filed late and that the Appellant is liable to penalties that have been imposed, unless the Appellant has a “reasonable excuse” for the late filing under s.118(2) of the TMA.
17.	The Tribunal finds that ignorance of the obligation to submit such returns does not amount to a “reasonable excuse” for late filing under s.118(2) of the TMA. 
18.	The Tribunal further finds that the obligation to file a CIS return exists whether or not there is a liability to pay any tax.  That is to say, there is an obligation to file a return, even if it would be a nil return.
19.	The Tribunal finds that it will not normally amount to a “reasonable excuse” that a taxpayer relied on incorrect advice given by an accountant or a tax adviser. On the evidence before it, the Tribunal finds that it has not been established that the Appellant's duty to file CIS returns in the circumstances was such a difficult or complicated area of tax law that an individual without expertise in tax law would have been incapable of meeting his or her obligations without specialist professional advice. The Tribunal finds that apart from anything else, this was a question on which the advice of HMRC could have been obtained if necessary.  The Tribunal therefore finds that the Appellant’s reliance on his former accountants and their failure to advise him correctly as to his obligations does not amount to a "reasonable excuse".
20.	Although the Tribunal so finds, the Tribunal is not without a certain amount of sympathy for the Appellant.  The Tribunal accepts his evidence that he was not seeking to evade payment of taxes, that he would have filed his returns on time if he had been aware of his obligation to do so, and that he did so as soon as he became aware of the obligation.  However, for the reasons given, this unfortunately does not amount to a reasonable excuse. 
21.	However, the Tribunal finds on its consideration of the evidence as a whole, on a balance of probabilities, that the Appellant’s new accountants contacted HMRC on 29 August 2009, advising that the returns for the months ending 5 April 2009 to 5 July 2009 needed to be filed.  The Tribunal is satisfied on a balance of probabilities that it was in response to that letter that HMRC, on 6 October 2009, backdated the start date for the Appellant’s contractor activity to 5 April 2009 and issued paper returns for the months ending 5 April 2009 to 5 July 2009.  The Tribunal finds that until this had occurred on 6 October 2009, it was not possible for the Appellant to file his returns for those months.
22.	Thus, although the Appellant’s accountants had notified HMRC on 29 August 2009 of the need to file returns for those months, HMRC did not take the necessary steps to enable the Appellant to do so until 6 October 2010.  In the meantime, another £100 penalty became imposed in respect of each of the four returns in September 2009.  Had HMRC responded to the accountant’s letter before mid-September, the Appellant could have been in a position to avoid the September penalties.  The Tribunal therefore finds that the Appellant has a reasonable excuse for the period between 29 August 2009 and 6 October 2010, that accordingly he is not liable to the four £100 penalties that were imposed in September, and that the overall sum of the penalties should accordingly be reduced by £400.
23.	Although it became possible for the returns to be filed on or soon after 6 October 2009, they were not in fact filed until 26 October 2009.  This had the result that another four £100 penalties became imposed in mid-October.  On the evidence before it, the Tribunal was not able to ascertain the reason for the delay in filing the returns after 6 October 2009.  Although the burden of proof is on the Appellant to establish that he has a reasonable excuse, the Tribunal takes into account that the Appellant did have legitimate difficulties in filing the return immediately prior to 6 October 2009, and that HMRC was unable to provide details of why the paper returns had to be reissued on 22 October 2009.  The Tribunal finds that the fact that the paper returns had to be reissued, and the fact that the returns were ultimately filed online despite paper returns having been sent twice, is consistent with some sort of continuing difficulty.  While the Tribunal finds the matter to be closely balanced, it is ultimately satisfied on a balance of probabilities that the Appellant continued to have a reasonable excuse for the period 6 October 2009 to 26 October 2009.  The Tribunal accordingly finds that he is also not liable to the four £100 penalties that were imposed in October, and that the overall sum of the penalties should accordingly be reduced by a further £400.
24.	For the reasons given above, the Tribunal allows the appeal in part, and finds that the total of the penalties imposed should be reduced by £800, from £2,200 to £1,400.
25.	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.

Dr Christopher Staker

TRIBUNAL JUDGE
RELEASE DATE: 8 September 2010