DECISION
1. This is
the appeal of Mr Darren Ireton against penalties totalling £1,200 for
non-submission of the 2005-06 End of Year (“EoY”) Construction Industry Scheme
(“CIS”) Return, and further penalties, also totalling £1,200, for
non-submission of the 2006-07 EoY Return.
2. The issues
in the case were whether Mr Ireton has a reasonable excuse for not filing the
returns by the deadlines, and if not, whether the penalties were
disproportionate.
3. Having
considered the evidence and the parties’ submissions, the Tribunal dismissed
the appeal and confirmed the penalties.
4. A number
of jurisdictional and practical points are briefly discussed at the end of this
Decision.
The
evidence
5. The
Tribunal was provided with the correspondence between the parties relating to
this appeal.
6. HMRC also
supplied screenprints showing details of the penalty notices and reminders which
were sent out.
7. Mr Ireton
provided the Tribunal with correspondence between him and his accountant at the
time, and with his current accountant.
The
law
8. In the
years 2005-06 and 2006-07 contractors were required to make EoY returns (SI
1993/743 Reg 40A). This requirement was abolished for subsequent years.
9. The due
date for EoY returns was 19 May after the end of the tax year (SI 1993/743 Reg
40A(1)).
10. If the EoY return was not
submitted by the due date, the contractor was liable to a penalty of £100 per
month or part of a month, up to a maximum of 12 months (Taxes Management Act
1970 (“TMA”) s 98A(2)(a) and (3), imported by SI 1993/742 Reg 40A). It is under
these provisions that Mr Ireton has been charged a penalty of of £1,200 for
each of the two years in question.
11. An officer of HMRC “may make
a determination imposing a penalty and setting it at such an amount as, in his
opinion, correct or appropriate” (TMA s 100).
12. If Mr Ireton has a
“reasonable excuse” for not submitting the EoY returns, no penalty is
chargeable (TMA s 118(2)).
13. If the penalty is chargeable
the Tribunal does not have power to reduce the penalty, but only to confirm it
(TMA s 100B). In contrast, HMRC have a wide-ranging power to mitigate or remit
a penalty (TMA s 102).
The
facts
2005-06
14. Mr Ireton first took on
subcontractors in 2005-06. The tax deducted from the subcontractor(s) in this
year £1,807.29. This was paid over to HMRC.
15. Mr Ireton used an accountant
but it is unclear whether the accountant’s responsibilities included advice on CIS.
I discuss this further below.
16. Mr Ireton’s 2005-06 EoY
return was due to be submitted on or before 19 May 2006.
17. On 12 March 2007 an interim
penalty notice of £900 was issued as the EoY return had not been received. This
was sent to Mr Ireton’s address in Basingstoke.
18. On 21 May 2007 a further
penalty notice for the same year was issued, for £300. This was sent to the
same address.
19. On 8 June 2007 a reminder
letter was sent to Mr Ireton from HMRC’s Debt Management and Banking
department, again to his Basingstoke address.
20. HMRC took no further action
until 13 October 2010, when they issued a letter threatening distraint action.
2006-07
21. Mr Ireton used one or more
subcontractors in 2006-07, and the tax deducted from these subcontractor(s) was
£1,980.90. This tax was paid over to HMRC.
22. The 2006-07 EoY return was
due on 19 May 2007.
23. On 3 August 2007 Mr Ireton
moved house, from Basingstoke to Hoddeston.
24. On 24 September 2007 HMRC
issued a penalty notice of £400 as they had not received the 2006-07 return.
The notice was sent to the Basingstoke address.
25. On 28 January 2008 a further
penalty notice, also for £400, was issued, again to the Basingstoke address.
26. On 25 May 2008, HMRC updated
their contact address for Mr Ireton.
27. On 26 May 2008 a further
penalty notice of £400 was issued to Mr Ireton; this was sent to the Hoddeston
address.
28. Again, HMRC took
no further action until 13 October 2010, their letter threatening distraint
action covered both years.
29. At some date
before 13 October 2010, Mr Ireton changed his accountant.
The
submissions of the parties
30. Mr Ireton says:
(1)
He began engaging subcontractors in 2005-06, so “this was the first year
anyone worked for me, I must not have known about this form, but should have
been told by my accountant but was not.” He also provided the Tribunal with a
copy of an email from his accountant, who says “we have never been involved with
this side as you dealt with these returns yourself.”
(2)
In relation to the first penalty for £900 this was one “which to my mind
I payed”.
(3)
The correspondence sent after he moved house never reached him.
(4)
He “missed a form but it was human error. If I was contacted before 6
years I would have sorted out.”
(5)
He paid over all the tax deducted from his subcontractors on time.
(6)
In relation to his own tax for these years he says “I am sure I payed
too much tax as I payed 20% myself then out of my money payed another 20% for
my workers.”
(7)
The penalty is “too big” and “a lot of money for a piece of paper.”
(8)
HMRC should apply ESC A19 and waive the penalties.
(9)
His current accountant has “tried to get these [EoY] forms to put them
in but has been told that they don’t exist any more.”
(10)
Finally he says that his gross income after tax and travelling expenses
is very low, and is exceeded by his outgoings, which are modest. He is the
family breadwinner and is completely unable to pay these penalties. In his
words “now in the middle of a recession you want £2,500 (sic) which is nearly 3
months money.”
31. HMRC’s submissions are as
follows:
(1)
Contractors had a legal obligation to submit EoY returns for the years
in question. There is no requirement that HMRC remind them of this obligation.
(2)
The penalty notices for 2005-06 and the reminder notice were all sent to
Mr Ireton at his then current address.
(3)
The two penalty notices for 2006-07 which were sent to the wrong address
were not returned to HMRC, and HMRC were not informed of the change of address
until after these two notices were sent out.
(4)
The penalties for not submitting the returns are fixed by statute.
(5)
The fact that the tax deducted from the subcontractors was paid over to
HMRC is not relevant, as these penalties are for non-submission of the returns.
(6)
The returns have still not been submitted: HMRC say “we have been in
contact with you with regards to your penalties for quite some time yet you still
refuse to forward the CIS36 to us.”
(7)
Mr Ireton has no reasonable excuse for not submitting the returns.
(8)
ESC A19 does not apply to CIS penalties.
(9)
The Business Payment Support Service can provide assistance if Mr Ireton
would like to discuss Time to Pay arrangements.
Discussion
and decision
32. It is not in dispute that Mr
Ireton’s EoY forms were not submitted by the due date, or within twelve months
afterwards.
33. In relation to 2005-06, I
find that:
(1)
The penalties were correctly determined by HMRC.
(2)
The penalty notices and the reminder notice were delivered to Mr Ireton
at his home address in Basingstoke. Mr Ireton accepts that at least the first
penalty notice for £900 was received, since he says “to my mind” it was paid.
(3)
As to whether the £900 was in fact paid, this is not a matter for the
Tribunal. I return to this at the end of my Decision.
34. In relation to 2006-07 I
find that:
(1)
The penalties were correctly determined by HMRC.
(2)
The first two penalty notices were delivered to Mr Ireton’s old address;
the third notice was delivered to his new address.
35. Mr Ireton puts forward two
possible reasonable excuse defences: the non-delivery of the penalty notices
and reliance on his accountant.
Non-receipt of the notices
36. The only penalty notices
sent to the wrong address were the first two for 2006-07. The third was delivered
to the new address. All those for 2005-06 were sent to the correct address.
37. I agree with HMRC that the
obligation is on the contractor to make the EoY returns, and the non-receipt of
a penalty notice does not remove either the obligation or the penalty. Non-receipt
of a penalty notice would possibly provide a reasonable excuse for a late
appeal, but HMRC have accepted Mr Ireton’s late appeal in any event.
38. I thus find that the
non-receipt of two penalty notices does not provide Mr Ireton with a reasonable
excuse for non-submission of the EoY returns.
Reliance on accountant
39. It is unclear whether
advising on CIS was within the scope of Mr Ireton’s then accountant’s engagement:
she says her firm “have never been involved with this side as you dealt with
the returns yourself.”
40. The fact that Mr Ireton
dealt with the returns himself does not of itself mean that the accountant had
no overall responsibility to advise on the structure and obligations of CIS –
but whether this was or was not the case is an issue to be resolved between Mr
Ireton and his then accountant by reference to the contract between them.
41. Even if I were to accept
that Mr Ireton had relied on his accountant to explain the requirements of CIS,
would such reliance be a reasonable excuse? Reliance on a third party agent did
provide a reasonable excuse in a case involving “difficult and complex area of
tax law”, including “the arcane matters of film finance partnerships” (Rowland
v HMRC [2006] STC (SCD) 536) A similar decision was reached in The
Research and Development Partnership Ltd v HMRC [2009] UKFTT 328 (TC),
which concerned complicated questions of research and development tax credits.
42. This Tribunal has taken a
different view in more straightforward cases (see, for example, Richfield
Fashion [2010] TC 00957). In The Research and Development Partnership Ltd
the judge said that when considering whether reliance on a third party
constitutes a reasonable excuse “it is proper to have regard to the nature of
the task.”
43. In this case the task is
straightforward, and I find that, even if Mr Ireton’s accountant had a
contractual obligation to advise him on the scope of his CIS responsibilities
and failed to do so, this does not constitute a reasonable excuse for
non-submission of his EoY returns.
Proportionality
44. Mr Ireton says that £2,400
is “a lot of money for a piece of paper.” He also says “now in the middle of a
recession you want £2,500 (sic) which is nearly 3 months money.”
45. The Human Rights
Act 1998 obliges the Tribunal to comply with Convention rights, and these
require that there be “a reasonable relationship of proportionality between the
means employed and the aim pursued”, see Gasus Dosier-und Fördertechnik GmbH
v Netherlands (Application 15375/89) (1995) 20 EHRR 403.
46. I thus
considered the question of proportionality and in particular the test set out
by Simon Brown LJ in International Transport Roth GmbH v Home Secretary [2003] QB 728 at [26] that a penalty is disproportionate if it is “not merely harsh
but plainly unfair”; this was the test relied upon in Enersys Holdings UK
Ltd v R&C Commissioners [2010] UKFTT 20.
47. It sets a high
threshold before a court or tribunal can find that a penalty, correctly levied
on the taxpayer by statutory provisions set by parliament, should be struck
down as disproportionate. Perhaps higher still is the threshold set by Waller
LJ in R (Federation of Tour Operators) v HM Treasury [2008] STC 2524 at
[32], when he said that the penalty in that case was disproportionate as it was
“devoid of reasonable foundation”.
48. One of the factors I take
into account in this case is the purpose of the EoY forms. CIS was originally
introduced in 1975 to counteract perceived evasion of tax by self-employed
workers in the building industry. It has been revised on several occasions. The
EoY form was part of CIS in 2005-07 and allowed HMRC to reconcile the monthly
amounts to the overall annual totals.
49. I recognise that in the
context of Mr Ireton’s current income the penalties are “harsh”, but, taking
into account both the purpose of CIS and the high thresholds before a penalty
is “disproportionate”, I find that the penalties in this case do not meet
those thresholds.
Decision
50. Mr Ireton has no reasonable excuse
for non-payment of the penalties and that they are not disproportionate. As a
result his appeal fails.
51. Mr Ireton’s penalties thus stand
unless mitigated or remitted by HMRC under TMA 102. That is entirely a matter
for them.
Other
points
ESC A19
52. Mr Ireton seeks to rely on
ESCA19: HMRC say that it does not apply to CIS penalties.
53. Whether the Tribunal has any
jurisdiction to review the operation of extra-statutory concessions is
currently uncertain, but in any event HMRC are correct that ESC A19 deals with
“arrears of income tax or capital gains tax” and not with penalties. It has no
application to this case.
Mr Ireton’s tax liability
54. Mr Ireton says that he
believes the tax he paid in these years was too high.
55. This is not a point which
can be considered by this Tribunal as it was not under appeal before me.
Whether the £900 penalty was paid
56. Mr Ireton says “to my mind”
the first £900 of penalties levied for 2005-06 was paid. The payment or
otherwise of penalties is not a matter for this Tribunal, its jurisdiction is
limited to considering whether there is a liability.
57. If Mr Ireton has evidence
showing that that the first £900 penalty was paid, he is advised to provide
this to HMRC.
The EoY forms
58. The requirement to provide
EoY returns was abolished for years after 2006-07. HMRC’s Statement of Case
says at page 2 that “we have been in contact with you with regards to your
penalties for quite some time yet you still refuse to forward the CIS36 to us.”
59. Mr Ireton’s Reply says that
his accountant “has tried to get these forms to put them in but has been told
that they don’t exist any more.”
60. If Mr Ireton still needs to
complete these forms, HMRC should provide him or his accountant with copies.
Time to Pay
61. Some of Mr Ireton’s
submissions concern his current lack of financial means. This is not a factor
which the Tribunal can take into account.
62.
However, HMRC referred in their Statement of Case to the help which can
be provided by their “Business Payment Support Service”. Mr Ireton appears not
to have noticed this reference and it might be useful if HMRC provided him with
appropriate contact details.
63. 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.
Anne Redston
TRIBUNAL PRESIDING MEMBER
RELEASE DATE: 29 SEPTEMBER 2011
