[2010] UKFTT 577 (TC)

TC00827

Appeal number: TC/2009/13878

Construction Industry Scheme .S 57 FA 2004. Regulation 4 SI 2005/2045. Obligation to deliver a monthly return imposed by s 57 on “persons who make payments under construction contracts” When a person ceased to be one who made payments. Extent of obligation to deliver nil return under Reg 4(10). Where obligation existed whether reasonable excuse for failure – reliance on another. Proportionality - Effect of Human Rights law – SKG(London) ltd TC 00282 considered. 

FIRST-TIER TRIBUNAL

TAX 

	GILES BUSHELL	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

TRIBUNAL: 	CHARLES HELLIER (Judge)
PETER LANG (Member)				 

Sitting in public at Cardiff on the 28 September 2010

Roger Ladbrook for the Appellant

Caryl Thompson for the Respondents

© CROWN COPYRIGHT 2010

DECISION
Introduction
1.	Mr Bushell appeals against some 134 penalties totalling £20,300 assessed for failures to make monthly construction industry scheme (‘CIS’) returns in relation to subcontractors working for him. The failures were generally in respect of months in which he had no contractors working for him, and for which the returns would thus have been nil returns. The penalties were mainly monthly penalties of £100 for each month for which a nil return was outstanding.
2.	121 of the penalty notices arrived all on the same day, 3 February 2009, mainly in separate envelopes. They embraced penalties in respect of the period from December 2007 to January 2009. Their arrival caused Mr and Mrs Bushell great stress. They had received no previous penalty assessments. A further seven penalty notices were issued on 27 February 2009, and six more on 27 March 2009. 
3.	Mr Bushell is a builder and roofer. For two jobs in the period August 2007 to November 2008 he engaged to subcontractors to help him. We refer to these as the large August jobs. He applied deductions in accordance with the CIS scheme to the monies he paid to the subcontractors and accounted to HMRC for the tax deducted. No complaint was made by the Respondents that there had been any failure to deduct or account for the tax due. In respect of most of the periods in which he engaged to subcontractors he completed the relevant returns, although some, for reasons which we shall come to later, were a little late. 
4.	The CIS requires returns to be made for months which run from the 6th of one month to the 5th of the following month. The first month in tax year will run from 6 April to 5 May. In this decision we call that period "Period 1(April)" with subsequent numbers for the later periods in the tax year: thus we call the return for the period from 6 August to 5 September (the return relating principally to August) the return for Period 5 (August).
5.	Mr Ladbrook acted for Mr Bushell between August 2007 and early 2008. He also presented Mr Bushell’s case before us and give evidence his own involvement and reports of what he had been told by those who later acted for Mr Bushell. We also heard from Mr and Mrs Bushell. From that evidence we find the following.
Our findings of fact
6.	In describing below when and whether returns were submitted we say, in relation to certain periods, that no return was submitted. This is shorthand for saying in relation to all the periods in which return was not submitted in time or shortly after the due date that for these periods a return was received by HMRC on 6 April 2009 after Mr Bushell had engaged another accountant, Roy Hicks, to deal with the penalty notices he had received.
7.	Mr Bushell normally works and worked  alone. But in August 2007 he engaged subcontractors to help with two unusually large jobs (the large August jobs). He contacted HMRC and was given a CIS scheme tax reference number on or around 20 August 2007. The subcontractors were engaged between about 13 August 2007 and 5 November 2007. In August, September and October 2007 Mr Bushell made payments to the contractors from which he deducted tax in accordance with the scheme. This job finished in November and Mr Bushell then returned to his normal practice of working alone. We find that by the end of November he had no work in hand or in prospect which would have caused him to engage a subcontractor, or any form of arrangement with any person to subcontract  (other than the residue of any arrangement resulting from the big August job). 
8.	In late August 2007 Mr Bushell appointed Mr Ladbrook to act for him in relation to the CIS.
Period 5
9.	The first return due to be made under the scheme was the August return the return for Period 5. Mr Ladbrook did not submit a return for Period 5(August) despite having been informed of the August payments because of a misunderstanding about the dates covered by the returns.
Period 6
10.	The second return due to be made was for Period 6 (September). Mr Ladbrook completed a paper return and included within it payments made in August (which should of course have been made in the Period 5(August)  return) together with those for September. The return appears to have been submitted before the end of the period (which was 5 October) on 2 October 2007. Payment was made to HMRC in respect of the deductions made at about the same time.
11.	Also in late September 2007 Mr Ladbrook was attempting to arrange to submit returns electronically. His initial application to HMRC was made on an out of date form and was returned. A subsequent application was made on 18 October 2007. 
Period 7
12.	On 15 November 2007 Mr Bushell told Mr Ladbrook about the subcontractor payments he had made in October and provided a cheque for the deductions.  Mr Ladbrook forwarded this to HMRC on 20 November 2007. The related details should have appeared on the CIS return for Period 7(October), but, probably as a result of the difficulties he was encountering with his arrangements for online filing, no return was submitted for Period 7.
Period 8
13.	The fourth return was that for Period 8 (November 2007). In November 2007 Mr Bushell had no subcontractors: the big job(s) had finished and he was back to working on his own in the usual way. No deduction was made and nothing was paid to HMRC. Mr Ladbrook told us that he submitted a paper return for Period8 (November). He had a copy on his file and by its place in its file he said that it must have been submitted between 8 December 2007 and 29 January 2008. He told us that a box had been ticked on the return indicating that it was not expected that any CIS payments would be made for the following 6 months (an expectation which proved correct because Mr Bushell did not engage a subcontractor again until August 2008). Miss Thompson told us that HMRC had no record of receipt of this return The Respondents did not however produce any evidence of the systems controlling the receipt of post or of any investigation into the possible receipt of the return, although they had had notice of this point since Mr Ladbrook's note prepared the tribunal hearing indicated, at point 15, that a paper return had been submitted for period date “probably in December 2007". 
14.	A letter of 3 September 2009 from Mr Ladbrook to the tribunal setting out Mr Bushell's case made no mention of the Period 8 return although it dealt with the returns for periods 5, 6, 7, and 9. It was only his later note, made for this hearing, which referred to the Period 8 return.
15.	We do not find it proved that the Period 8 return was dispatched by Mr Ladbrook. Despite the preservation of a copy of the return in his file, we find it possible that it was prepared and copied but not dispatched: Mr Ladbrook's hesitant evidence on its date of dispatch was not enough to convince us that it had been.
16.	Mr Ladbrook ceased acting for Mr Bushell at sometime between Nevember  2007 and early January 2008, but on 29 January 2008 and 12 February 2008 he received reminders from HMRC in relation to Mr Bushell indicating that CIS payments had not been received for Period 9, the period to 5 January 2008. He told us that he did not contact Mr Bushell about these reminders or take any other action, although in a letter of 2 November 2009 to the tribunal he said that he suspected that this reminder prompted him to submit a period 9 nil payslip (rather, we note, than a return) but that he had no record of its submission. We asked him whether, in view of the tick he told us he had placed on the return for Period 8 indicating that no CIS payments were likely for the next six months, he was surprised by these reminders. He told us that he was not. They were computer-generated reminders produced automatically: one could not expect too much of such a system. He knew nothing was due and that Mr Bushell had no subcontractors. There was no concern.
Periods 9,10,11,12
17.	No returns were made for periods 9 (December 2007), 10 (January 2008), 11 (February), 12 (March 2008)  by Mr  Bushell or Mr Ladbrook.
Events in 2008
18.	In February 2008 Mr Bushell appointed Roy Hicks to prepare his year-end accounts and submit his tax returns.
19.	In March 2008 HMRC sent a letter (a CIS reminder letter) to Mr Bushell suggesting he was in default with his subcontractor payments and returns. He received a couple of other such letters in the following months. Mr Bushell telephoned HMRC at some time in March or April 2008. He explained that he no longer engaged sub-contractors. The person to whom he spoke told him not to worry: he was not shown as a contractor on the computer. He should ignore the computer-generated letters.
20.	Mr Bushell was not clear about the precise date of the phone call. For reasons including those we refer to in paragraph [34] below that is not unreasonable. We find that the call was made in late April 2008.
21.	In May 2008 HMRC sent two CIS reminder letters to Mr Bushell. These indicated that returns were outstanding for February. March and April 2008. It appears that Mr Bushell referred these to Mr Hicks. In the notice of appeal (signed by Mr Hicks) he says that he wrote to HMRC about these letters on 2 July 2008 and encloses with the notice of appeal a copy of that letter. The copy refers to these reminders and says that Mr Bushell had not received any of the forms referred to. He makes an appeal against the penalties (although none had been assessed) and says that the delay in his reply (from May to 2 July 2008) was because of the loss of forms of agent’s authority which had been submitted in April.
22.	HMRC in their statement of case say that they have no record of receiving this letter. Miss Thomson did not enlarge on this in her submissions before us.
23.	We make no finding as to whether or not that letter was posted or received. The content of the letter makes no statement relevant to the issues we had to determine save the proposition that Mr Bushell had not received the return forms. Given that Mr Ladbrook had earlier made paper returns we believe that either Mr Bushell or Mr Ladbrook received the return forms for 2007/ 2008, and that Mr Hicks was mistaken.
24.	No return was made for Period 1 of 2008 (April), Period 2(May), Period 3(June), or Period 4 (July 2008).
25.	In August 2008 Mr Bushell took on another job in which he needed help. He knew that he would engage in other subcontractor. At sometime in August 2008 he telephoned HMRC and told them he needed to go back on the subcontractor scheme. He was told that a pack would be sent to him. The packs are not arrive immediately and Mr Bushell made two or three further chasing telephone calls.
26.	On 30 October 2008 HMRC’s debt management unit wrote to Mr Bushell chasing payments under the CIS scheme in relation to periods 1 to 6 of 2008/9. Mr Bushell phoned HMRC on 13 November 2008 in response to this letter. He was told to ignore it. Mrs Bushell made in manuscript note of the result of the phone call on the letter. 
27.	On 14 November the CIS pack was sent to Mr Bushell: it arrived on 17 November 2008. The pack contained blank CIS returns and pay slips. The pay slips had printed on them the same CIS tax reference which had initially been assigned to Mr Bushell in August 2007.
28.	On 2 December 2008 (15 days after his receipt of the CIS pack) HMRC received from Mr Bushell CIS returns for Period 5 (August 2008), Period 6 (September 2008), and Period 7 (October 2008)  together with payments for the tax deducted.
29.	Mr Bushell stopped using subcontractors in December 2008. He rang HMRC to say that he'd ceased to use a subcontractor. He was thanked for the information and told that the system would be updated. 
30.	The return for Period 8 (November) was received by HMRC before the due date.
31.	 The return for Period 9(December), was received by HMRC on 30 January 2009, 11 days after the due date. 
32.	In January 2009 Mr and Mrs Bushell moved house.
33.	On 3 February 2009 the occupant of Mr and Mrs Bushell's former home told them that there was a big pile of post them. There were a large number of envelopes with 121 penalty notices. Further penalty notices were issued on 27 February 2009 and 27 March 2009. The total £20,300. The tax deductions made and accounted for by Mr Bushell total £2,160.90.
34.	Mrs Bushell had a lung which periodically collapsed. In about April 2008 she had an operation to improve the adhesion of the pleural surfaces of her lungs. We were pleased to gather that the operation had been successful. We take the timing of the operation into account in determining what steps it was reasonable for Mr Bushell to take in the early part of 2008. It does not seem to us that Mrs Bushell’s earlier ill health and later operation provides an automatic indulgence for any failure by Mr Bushell, but it does in our view permit one to take a more moderate view of the time scale of reasonable responses and a more understanding view of lack of precise recall of particular dates or occasions in the period surrounding April 2008. .  
The law
35.	The construction industry scheme was introduced by Finance Act 2004. The primary legislation was supplemented by regulations, namely SI 2005/2045. The scheme provides for certain payments made by a “contractor” to subcontractors to be made under deduction of income tax. Subcontractors who are registered for gross payment may receive payment without deduction.
36.	Regulation 1 of the Regulations defines “contractor” to have the same meaning as in section 57 FA 2004. Section 57 FA 2004 defines "contractor” in subsection (2)(b):
“(2) In this chapter "construction contract" means a contract relating to construction operations (see section 74) which is not a contract of employment but where --
(a) one party to the contract is a subcontractor (see section 58); and
(b) another party to the contract ("the contractor") either --
(i) is a subcontractor under another such contract relating to all or any of the construction operations, or
(ii) is a person to whom section 59 applies."
37.	Section 59 describes 12 classes of person. They include the Crown, the NHS and local authorities. But the first category is:
“(a) any person carrying on a business which includes construction operations".
38.	It will be seen that as a result any person who is carrying on a business which includes construction operations will be a contractor for the purpose of the regulations. 
39.	Section 70 deals with periodic returns by “persons who make payments under construction contracts” (the word “contractor” is not used: whilst a person who makes payments under such contracts must be a contractor because of the definition of construction contract (see para 36 above)., a contractor will not necessarily be a person who makes such payments.). It permits the Board of HMRC to make regulations about such returns. Under subsection (1) permission is given to make regulations to require persons "who make payments under construction contracts”  to make returns in relation to such payments. Subsection (2) provides that provision made in those regulations may include provision requiring:
"(d) a return to be made where no payments have been made in the period to which the returned relates."
40.	We note that this permits  regulations to be made only in relation to “persons who make payments under construction contracts”.   There are two points to make. First that if a person is merely a contractor, but not a person who “makes payments” then the Regulations cannot make, and cannot be treated as making, make any provision requiring him to make returns. 
41.	Second, the word “makes” implies an element of continuity. In our view, on a proper construction of this word, a person who has made payments and will never make them again is not a person who “makes” payments; on the other hand a person who has made payments will continue to be a person who makes payments until there cease to be arrangements by virtue of which he may make them.
42.	 A proper construction of “makes” must of course be made in contemplation of the section as a whole. Subsection (2)(d) is part of the whole. It specifically authorises the making of a requirement to submit returns where no payments have been made in the period. The approach to “makes” outlined above does not deprive this provision of effect: a person who makes a payment in January, and who is subject to arrangements under which he will make payments in March, will, in February, be a person who “makes” payments.  
43.	Nor does it seem to us that the legislative purpose of that subsection requires some broader meaning of “makes” so as to encompass a person who at some past time has made payments but has not given notification of his cessation: once a person has ceased to be someone who makes payments there is no need for HMRC to have no interest in him, but if he simply does not make one in the relevant month, there is an interest in monitoring his actions and, through the return obligation, reminding him of his continuing obligations. 
44.	Finally we note that we have paid no heed to the terms of the Regulations in construing the Act: secondary legislation can be no guide to the construction of primary legislation. The words of Regulation 4(11) quoted below provide a sensible way by which a person who is, or is about to become a person who no longer makes payments may make his position clear – for his own benefit and that of HMRC. But whilst providing a good workable administrative solution it does not help in construing the words of the Act under which it is made. 
45.	Regulation 4 (1) provides that a “return must be made to HMRC not later than 14 days after the end of every tax month by a contractor making contract payments”. “Contract payments” are (by section 60 FA 2004 and regulation 1) payments made under construction contracts and made by the contractor to a person who is a subcontractor. A tax month is defined as the period beginning on the 6th day of the calendar month and ending on the 5th day of the next. Thus the return must be made by the 19th of the month following that to which the substantial part of the return relates.
46.	Thus an obligation arises to make a return arises only if (a) the person is a contactor, and (b) he is a person who “makes” payments under construction contracts.  
47.	Regulation 4 paragraphs (10) to (13) are particularly relevant to this appeal. They provide:
"(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 TMA (special penalties in the case of certain terms) applies to the requirements in -
paragraph (1), ... [and] ... paragraph (10).
(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 each month (or part of a month) during which the failure continues after the 19th day of the sixth month following the appointed day.”
48.	We note that regulation (11) requires no particular form for such notification: it may be by letter, fax, email, phone or face to face. 
49.	Section 98A TMA provides relevantly as follows:
"(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 each month (or part of a month) during which the failure continues ... 
(b) if the failure continues beyond 12 months, without prejudice to any penalty under paragraph (a) above, to a penalty not exceeding…(ii) in the case of a provision of regulations made under section 70(1)(a) or 71 [FA]2004, £3000.
     “ (3) For the purposes of subsection (2)(a) above, the relevant monthly amount in the case of the a failure to make a return -- (a) where the number of persons in respect of whom particulars should be included in the return is 50 or less, £100 ...”
50.	Section 118(2) TMA provides:
"(2) ... 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 ceased."
51.	We note that, unlike section 59 VATA, there is no express restriction on the ambit of reasonable excuse which excludes therefrom the reliance on another person to perform a task.  
52.	In Roland v HMRC 2006 STC SC D 536, the Special Commissioner held that in the context of section 118(2) TMA, reliance on a third party could give rise to a reasonable excuse. In Roland the taxpayer had relied on apparently incorrect advice from her accountants in relation to a complex field of taxation. The Special Commissioner found that it was sensible and reasonable for her so to do, and that she had a reasonable excuse.
53.	 In Huntley Solutions Ltd 2009 UK FTT 329 (TC) the appellant relied upon an agent to provide fairly straightforward information and documents to HMRC. The agent failed to provide those documents through a combination of overwork and personnel difficulties. The tribunal sought written submissions from the parties as to whether the reliance on a third-party could be a reasonable excuse. In those submissions both parties (including HMRC) accepted that reliance on the third party could amount to a reasonable excuse for direct tax purposes (paragraph [25]).
54.	 The tribunal in Huntley Solutions agreed that reliance on another could provide a reasonable excuse ([32]), but accepted the submission from HMRC that regard should be had to the nature of the task. It found the information required of the taxpayer straightforward and easily understood, and that accordingly it was not reasonable for the appellant to rely on the agents when it should have been able to comply itself [34], and that therefore the appellant did not have a reasonable excuse.
55.	 In Jeffers TC0337, the President, Sir Stephen Oliver, held that reasonable reliance on accountants did not constitute a reasonable excuse in the absence of any underlying cause.  He said: 
“17.	The Code (i.e. Part X of TMA) does not qualify the expression “reasonable excuse” by, for example, ruling out reliance on another to perform a task such as making a tax return.  The obligation to make the tax return on time is nonetheless the taxpayer’s.  It remains his obligation regardless of the fact that he may have delegated the task of making the return to his agent.  There may be circumstances in which the taxpayer’s failure, through his agent, to comply with, e.g, the obligation to make the return on time can amount to a “reasonable excuse”.  To be such a circumstance it must be something outside the control of the taxpayer and his agent or something that could not reasonably have been foreseen.  It must be something exceptional.”
56.	It seems to us that reliance on an agent may be an excuse or a reason for non compliance, but such reliance is normal and customary, and the statute cannot have intended such reliance to constitute a reasonable excuse in every case. It seems to us that it cannot be the intention of legislation to permit the reliance on a competent person who fails unreasonably to fulfil the task with which he is entrusted to absolve the principal in all cases. 
57.	 We concur with the President when he said that to be a reasonable excuse the excuse must be something exceptional. In our view, in determining whether or not that is the case it may be necessary to consider why the agent failed (and thereby to regard the agent as an arm of the taxpayer). To give a simple example, if a return was given to someone to post, and that person failed to do so, the reasons for that failure will illuminate whether or not there is a reasonable excuse: if the messenger was run over by a bus the position will be different from the case where the messenger merely forgot.  
Proportionality and human rights law
58.	In SKG (London) Ltd 2009 UK STT 341 (TC) the tribunal heard the beginnings of an argument as to whether the penalties imposed through Regulation 4 above should be read as modified by the effects of human rights law. The tribunal adjourned for further submissions. We were told that the case settled and that the submissions were not in the event heard. We were also told, however, that an appeal had been made to the Upper Tribunal on similar grounds against the decision in Richard King 2010 UK STT (79). Mr Ladbrook asked us to consider submissions on the same grounds. Miss Thompson asked that the appeal be stayed pending the Upper Tribunal appeal if we considered those grounds permissible or relevant.
Discussion
59.	Under the headings below we consider in relation to each return period whether there was an obligation to deliver a return, whether there was a default, and if so whether there was a reasonable excuse therefor. We consider later in this section the issue of proportionality and human rights law.
(1) The return for Period 5 (August 2007).
60.	Miss Thomson told us that HMRC were withdrawing the penalties relating to this return. To the extent necessary we thus formally determine the penalties for this period as nil.
(2) The return for Period 6 (September 2007).
61.	This return was received on time. There was no default. No penalties were charged.
(3) The return for Period 7 (October 2007).
62.	Payments were made to subcontractors in this period. A return was thus due for the period. Although payments were made Mr Ladbrook did not submit the return.
63.	We ask ourselves whether the appellant's reliance on Mr Ladbrook or the circumstances which occasioned Mr Ladbrook's default constituted a reasonable excuse for the failure.
64.	We find no reasonable excuse on these grounds. For the reasons set out above we do not consider that mere reliance on another person can constitute a reasonable excuse. We do not find that Mr Ladbrook's difficulties with online submission provide an excuse for failure to submit a return for Period 7- online or in paper form.
65.	We next ask ourselves whether any later circumstances constituted for any period reasonable excuse for the continuing delay in submission.
66.	First, we note that the reminders issued on 29 January and 12 February to Mr Ladbrook reinforce our conclusion that there was no reasonable excuse in these months: even though they related to Period 9 they should have jogged his memory in relation to Period 7.
67.	Next we consider whether the response to Mr Bushel’s telephone call with HMRC in April 2008 constituted a reasonable excuse for the failure after the date of that telephone call to submit a return to Period 7.
68.	In our view it does. We found that Mr Bushell had been told to ignore the reminder and not to worry. The effect of this was such as lead him reasonably to believe that his affairs were in order. This excuse however ceased on 3 February 2009 when the penalty notices were received by Mr and Mrs Bushell. At that time they should reasonably have (and in fact did) appreciate that things were not in order. And there is a difference between a computer-generated reminder and a penalty notice. Although the notices could have been thought a bad joke they required serious action. 
69.	It was not until 6 April 2009 (some two months after the receipt of these penalty notices) that's the default was remedied. It seems to us that one month would have been a reasonable time. Thus, in our view, the excuse terminated on the 3 March 2009.
70.	As a result the proper penalty in respect of the Period 7 failure to deliver the return by 19 November 2007 was £100 for each of the months beginning the 20th of: November 2007, December 2007, January 2008, February 2008, March 2008, February 2009 and March 2009. No further penalty arises under section 98A(2)(b)  since the failure did not continue for more than 12 months. In other words the total penalty exigible in relation to the Period 7 return is £700.
(4) the return for Period 8 (November 2007).
71.	This was the first month in which Mr Bushell made no CIS payments. He could be made liable to make a return under Regulation 4 only if he was a person who "makes" payments. On the evidence before us it seemed to us that in November 2007 Mr Bushell could fairly be described as someone who makes payments. He had made a payment in the preceding month and although he had returned to his previous way of working that we find that the evidence was insufficient to show that he had dispelled the penumbra of making payments: it was not shown that there was no residual arrangement to make payments to the subcontractors he used for the large August jobs – for example payments due for work done but withheld for a cautionary period or payments which would arise in dealing with snags in the work done.  He was a contractor and thus in our view he was obliged to make a nil return for the period.
72.	We concluded that it was not proven that this return had been dispatched by Mr  Ladbrook. Thus there was a failure. 
73.	 There was nothing in the evidence before us that suggested that Mr Ladbrook had a reasonable excuse for failing to despatch the return. We conclude for reasons similar to those for Period 5 that there was no reasonable excuse for that failure.
74.	As was the case in relation to the Period 5 return we conclude for the same reasons that an unexcused failure continued up to the time of Mr Bushell's telephone call in April 2008 but the failure was thereafter reasonably excused until 3 March 2009.
75.	Thus the proper penalties in respect of the Period 8 return were £100 for each of the months being beginning 20th: December 2007, January 2008, February 2008, March 2008, February 2009, and March 2009. No further penalty arises under section 98A (2) (B) since the failures did not extend beyond 12 months. In other words the total penalties were £600.
(5) the returns for Period 9 (December 2007).
76.	We find that in this period Mr Bushell had not taken on any job, and was not subject to any arrangement to take on any job, which could involve a subcontractor. The only arrangement in this period by virtue of which Mr Bushell could possibly make a payment to a subcontractor was that relating to the large August job in circumstances similar to those described in paragraph 71 above. Although his last payment was some 5 to 8 weeks previously, the evidence before us was, on balance, insufficient persuade us that the arrangement in relation to those jobs had ceased. Accordingly we find that in relation to December 2007 Mr Bushell was a person who "makes payments". 
77.	We find therefore that Mr Bushell was liable to make a nil return to Period 9. That return he failed to make until 6 April 2009. No excuse other than the absence of subcontractors was offered in respect of this failure. For the same reasons as set out in relation to Period 8 we find that the proper penalties were for January 2008 February 2008, March 2008, February 2009, March 2009 and that no twelve-month penalty arose. In other words the total penalties in relation to the Period 9  return were £500.
(6) The return for Period 10 (January 2008).
78.	At this stage it was over two months since Mr Bushell had made his last payment. We find that at this stage he had no arrangements in hand for engaging subcontractors or for undertaking work which would or might involve using subcontractors or making payments to them. We find that by this time it was unlikely that he was subject to any arrangement arising from the large August jobs which involved making a payment to a subcontractor. He was not therefore a person who "makes payments". He could not therefore be obliged by the Regulations to deliver a nil return.
79.	As a result there was no failure to comply with the Regulations and no penalty arises.
80.	If we are wrong about this then, for the reasons set out in relation to Period 8 and Period 9 above, the penalties would have been limited to £400 in total because of the reasonable excuse which extended from April 2008 to January 2009.
(7) The return for Period 11 (February) and Period 12 (March 2008).
81.	For the reasons set out in relation to Period 10 we find that in those periods Mr Bushell was not a person who "makes payments" and so was not liable to make a nil return. There was no failure.
82.	If we are wrong then the result of the reasonable excuse between April 2008 and January 2009 would be penalties totalling £300 and £400 respectively in relation to these return periods.
(8) The returns for Period 1 (April 2008), Period 2 (May 2008), Period 3 (June 2008) and Period 4 (July 2008).
83.	For the reasons set out above in relation to Period 10 we find that Mr Bushell was not required to make returns for these periods.
84.	If we are wrong about this, and Mr Bushell was a person to whom the Regulations could apply, we find that in the telephone call of April 2008 he gave HMRC notice for the purposes of Regulation 4(11) and as a result was not required by the Regulations to make a return.
85.	If we are wrong about that, then although there was a failure to make the returns that failure was reasonably excused as a result of a telephone conversation with HMRC: in our view the appellant could rely upon that conversation even after the receipt of the penalty notices on 13 February 2009 since he had been told he was no longer a registered as a contractor. In other words that he was no longer liable at all under the system.
86.	No penalties arise in respect of these periods.
(9) The returns for Period 5 (August 2008), Period 6 (September 2008), and Period 7 (October 2008).
87.	Mr Bushell was a person making payments in these periods. He was a contractor. He was liable to make a return in accordance with Regulation 4. The returns were made but were late.
88.	 Mr and Mrs Bushell received their information pack on 17 November having notified HMRC in August and made several follow-up telephone calls. It seems to us that as a result the appellant had a reasonable excuse for failing to make the returns for periods 5, 6 and 7 until 15 days after the receipt of the pack.
89.	Therefore no penalties are exigible in respect of these periods.
(10) The return for Period 8 (November 2008) was received on time.
 No penalty was charged or under appeal.
(11) the return for Period 9 (December 2008) .
90.	The return was, in our view, due: tax was accounted for in respect of deductions made from payments to subcontractors in that period. We were told that Mr Bushell ceased using subcontractors in December. We conclude that he made his last payment in December.
91.	The return was due on 19 January 2009. It was received on 30 January 2009. No excuse was offered in respect of this delay other than the fact that Mr and Mrs Bushell had moved house. We do not believe that this afforded a reasonable excuse in the circumstances.
92.	Thus the penalty of £100 in respect of Period 9 should stand.
Summary.
93.	We conclude that the appeals should be allowed to save to the extent of:
(1)	£700 in respect of 2007/8 Period 7 (for which matters were in Mr Ladbrook’s hands);
(2)	£600 in respect of 2007/8 Period 8 (for which matters were in Mr Ladbrook’s hands);
(3)	£500 in respect of 2007/8 Period 9 (December 2007); and
(4)	£100 in respect of 2008/9 Period 9 (December 2008).
94.	We referred above to the human rights law proportionality issue raised in SKG (London) Ltd. Whilst not expressing any concluded view on the merits of the argument to the penalties we have determined are properly due, it is clear that it was recognised by Judge Waters QC that there might be a tenable argument in appropriate circumstances.  As a result it is right that we permit the appellant to make further representations on that issue if it so wishes. However we agree with Miss Thompson that it would not be just to permit this argument to be pursued before the result of the decision of the Upper Tribunal in the King case is published, although of course it might be withdrawn or settled. We therefore direct as follows:
(1)	if the appellant wishes to argue the proportionality point in relation to the penalties we have held to be properly exigible he should write the tribunal within 21 days of the release of this decision saying so;
(2)	if the appellant does not so write then this appeal is determined by the decisions set out above; and
(3)	if the appellant does so write then the appeal will be stayed until after the earlier of (i) the publication of the Upper Tribunal decision in King, or (ii) 30 June 2011: and in such case the parties shall write to the tribunal within 28 days after the stay finishes seeking directions for further steps in the appeal, and have liberty to apply for further or other directions before that time.

Rights of appeal.
95.	If, pursuant to direction (2) above this appeal is determined, then our decision (full reasons for which are set out in this document) finally disposes of all the issues in these proceedings. In these circumstances (ie where (2) above operates) both parties have a right to appeal against this decision to the Upper Tribunal pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009. In accordance with those rules an application to appeal must be received  by the tribunal no later than 56 days after this document is sent to that party. However, given that  in these circumstances the decision takes effect 21 days after this document is sent, we extend the period by an extra 21 days – from 56 days  to 77 days. Subject thereto the guidance which accompanies this decision forms part of it. 
96.	The respondents have a right to appeal to the Upper Tribunal against our decision allowing certain of the penalties. However, if the Appellant serves notice under direction (1) above, then the proportionality issue might become an additional reason for allowing the appeals against those penalties. In that case this document would not set out our full reasons in relation to those penalties. We therefore direct that if the Appellant does serve such notice, then the time limit under those Rules in which the Respondents may appeal against this decision shall not start to run until a final decision dealing with that issue has been sent to them.

CHARLES HELLIER
TRIBUNAL JUDGE

RELEASE DATE: 16 November 2010