[2011] UKFTT 405 (TC)
TC01260
Appeal number
TC/2010/05026
Construction
Industry Scheme – withdrawal of gross payment status – Finance Act 2004
(Schedule 11) – Appeal against withdrawal – Reasonable excuse – Appeal
Dismissed
FIRST-TIER TRIBUNAL
TAX
JOHN
J. DUFFY Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS ("HMRC") Respondents
TRIBUNAL: IAN WILLIAM HUDDLESTON, TRIBUNAL JUDGE
Sitting in public at Bedford
House, Belfast on 12 April 2011
Mr. Corbett for HMRC
Aiden Maguire, Accountant for the
Appellant
© CROWN COPYRIGHT
2011
DECISION
Appeal
1. This
is an appeal against the withdrawal of gross payment under the Construction
Industry Scheme as notified to the Appellant originally on the 8 October 2010
and as subsequently upheld post review in a review letter dated the 4 March
2010.
2. The
Construction Industry Scheme is a statutory concession which allows traders to
be paid without the deduction of tax, subject to their compliance with certain
statutory conditions.
3. The
conditions for the initial registration and against which their subsequent
compliance is judged are contained in Schedule 11 of the Finance Act 2004.
Broadly speaking both for the initial registration and for the continued application
of the concession, a trader must satisfy the statutory conditions. The one
which is germane to this Appeal is the ongoing compliance test which is set out
in paragraph 4 of that Schedule:
"The Applicant must, subject to sub-paragraphs
(3) and (4) have complied with:
(a)
all obligations imposed on him in the qualifying period by or
under the Tax Acts or the Taxes Management Act 1970; and
(b)
all request made in the qualifying period to supply to the Inland
Revenue accounts of, or other information about, any business of his.
Where the compliance test is failed, HMRC have the
statutory power to withdraw the gross payment status."
4. In
the present case, based on an annual review of the Appellant's tax affairs,
HMRC discovered six breaches in the tax year 2008 / 2009. Four of those
related to late payments of PAYE and two related to late payments of tax under Self
Assessment. The Tribunal was presented with a Schedule which detailed the
relevant breaches and provided details on the number of days for which each
payment was overdue. Each of the instances fell outside the statutory
concessions for late payments which are detailed in Regulation 32 of the Income
Tax (Construction Industry Scheme) Regulations 2005 (SI2005/2045).
5. On
that basis, the failure to comply and the withdrawal of gross payment status
was initially notified to the Appellant by HMRC on the 8 October 2009. That
decision was reviewed, at the request of the Appellant, but was upheld – the
review decision being communicated to the Appellant in a letter dated the 4
March 2010, against which the Appellant now appeals.
6. The
Appellant was represented by his accountant, Mr. Maguire, but he himself also gave
evidence.
7. In
essence, the Appellant sought to advance an argument for "reasonable
excuse" based on a number of factors. Those factors (and here I
summarise) were as follows:
(1)
that in the operative period (2008 / 2009) the Appellant faced difficult
trading conditions (Ground 1);
(2)
that in the nature of his trading activities (as a roofing contractor)
the Appellant was heavily dependent upon one main contractor, who in turn had
suffered cash flow difficulties which had a knock on effect on the Appellant's
cash flow (Ground 2);
(3)
that there was greater price competition in the market generally (Ground
3); and
(4)
that the Appellant had acquired rental properties within the year in
question which impacted considerably upon his cash flow because of the cost of
those acquisitions and the slowness in obtaining satisfactory tenants (Ground
4).
8. In
advance of those arguments, the trading accounts of the Appellant were
furnished as part of the trial bundle.
9. In
relation to Ground 1, HMRC, by reference to those trading accounts, pointed out
that between 2007 and 2008 there was a 16% increase in turnover, and an
increase in net profit of 45%.
10. As regards
Ground 2 (dependence on the main contactor) HMRC sought to advance (by
reference to the accounts) that as at the accounts date of 31 December 2008 no
debtors were actually shown in the accounts and that, therefore there was no objective
evidence of the slow payments / cash flow issue alleged by the Appellant.
11. Ground 3 was a
statement but no evidence was advanced in relation to it.
12. The Appellant
sought to challenge this on the basis that the accounts date of 31 December
2008 was obviously within the winter period which was slow for construction
activity, and that all debts for the earlier periods of the year had by that
date been discharged.
13. In relation to
Ground 4 (the acquisition of rental properties), the Appellant sought to explain
that the acquisition of four rental properties in Hartlepool had impacted
considerably upon his cash flow and, given the market fall which all property suffered,
his ability to access further credit.
14. The Appellant
gave evidence that drawings for his trading activities had been used to fund
the initial deposits, and that the balance of the purchase price had been paid
through buy to let borrowings.
15. HMRC's position
on that point was that that decision had been a personal decision of the
Appellant, and was not a "reasonable excuse" as to why the amounts
due to the Inland Revenue had not been discharged when they fell due.
16. The final point
advanced by HMRC was that at all times the Appellant had the benefit of an
overdraft from its bankers, First Trust. That overdraft limit was placed at
£10,000 and on each occasion when tax fell due, HMRC had identified the
relevant "head room" within that overdraft facility which would have
allowed the payment of five of the six instances of tax arrears detailed on the
Schedule of Defaults.
17. In that specific
regard, the Appellant indicated that he, at each point, was unsure of the
continued availability of overdraft facilities and therefore, rightly or
wrongly, took the view that there were not sufficient funds available to allow
him to discharge his tax liabilities and, simultaneously, continue to trade.
18. The Appellant
has sought both in its discussions with HMRC and in his arguments before this
Tribunal to advance the ground of "reasonable excuse" as a reason for
the failure to pay tax when it fell due and why gross payment status should not
be withdrawn. The law, however, in this regard is very strict. The onus of
proof lies squarely upon the Appellant, and the standard of proof which the
Appellant is required to achieve is high. Mere assertions are not sufficient.
19. It is clear that
this Tribunal's supervising jurisdiction, in relation to these matters, is
quite limited.
Decision
20. In the present
case, whilst the Appellant advanced Grounds 1 and 2 (and collaterally Ground 3),
we do not find that they meet the requisite standard, and therefore we do not
consider that "reasonable excuse" has been established to this
Tribunal's satisfaction.
21. Save for the
accounts, no cogent evidence has been furnished to establish that the cash flow
difficulties put forward as a "reasonable excuse" were sufficiently
extreme to satisfy us that the standard required by the law has been met.
22. In relation to
Ground 4 (the acquisition of the buy to let properties), whilst this was
advanced as a reason for the cash flow difficulties which the business
suffered, specifically the Tribunal finds that whilst it did in all probability
have the impact suggested by the Appellant, it was an extraneous cause and arose
as a direct result of the Appellant's decision to purchase investment
property. That decision was a personal one and, according to the Appellant's
evidence, we find had the effect of preferring an investment decision over the
discharge of tax liabilities as and when they fell due. We do not suggest that
the Appellant intended it, but that appears to have been the result.
Nonetheless, we do not feel that the Appellant can now assert his investment
choices as grounds to say he should be excused from his obligation to pay tax.
23. Finally, as
regards the debate over the overdraft, whilst we can understand the Appellant's
concern at not wishing to draw cheques up to the full limit of his overdraft
limit, nonetheless when taken in the round, that again was his choice.
24. In short, on
each of the grounds advanced we do not find that "reasonable excuse"
has been established to the standard which is required by the law.
25. The Appellant
eloquently (and poignantly) pointed out the risk which an adverse conclusion of
this Tribunal would have on his business, and the nine people he employs.
26. Whilst the
Tribunal is sympathetic in that regard, nonetheless the effect of our decision is
not something to which at law we can have regard. See John Grosvenor v HMRC
TC00227.
27. In short, we
find that the onus of proof which rests on the Appellant therefore to prove
reasonable excuse for the tax defaults (which he accepts occurred) has not been
made to the Tribunal's satisfaction, and accordingly we dismiss the appeal.
28. 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.
29. No order as to
costs.
IAN WILLIAM HUDDLESTON
TRIBUNAL JUDGE
RELEASE DATE: 22 June 2011
