[2011] UKFTT 76 (TC)

TC00954

Appeal number: TC/2010/05970

Appeal against penalties imposed for the late submission of ten monthly CIS returns on the grounds that not all the returns were received from HMRC – those received were posted on time but delayed by the postal service- the Appellant had reported the nil returns by telephone

FIRST-TIER TRIBUNAL

TAX 

	KD DUCTWORKS INSTALLATIONS	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

		TRIBUNAL: S.M.G.RADFORD (TRIBUNAL JUDGE)	

The Tribunal determined the appeal on 25 October 2010 without a hearing under the provisions of Rule 26 of the Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009 (default paper cases) having first read the Notice of Appeal dated 1 July 2010,  HMRC’s Statement of Case submitted on 9 September 2010 and the Appellant’s Reply dated 12 October 2010.

© CROWN COPYRIGHT 2010

DECISION

1.	This is an appeal against the penalties of £4,400 imposed for the late submission of ten monthly Construction Industry Scheme (“CIS”) returns for the months ending 5 November 2007 to 5 July 2008 and 5 October 2008.
Background and Facts
2.	Under the CIS a contractor is required to send a completed return for each monthly return period to reach HMRC by the 19th of the month in which the return period ended. This is the filing date. The return period runs from the 6th of one month to the 5th of the next.
3.	If a return is received after the filing date it is treated as being late. Even if a contractor has not paid any subcontractors during the month a nil return is still required. If a return is late the contractor will be liable to a late return penalty of £100 for each month or part of a month that the return is late.
4.	Mr and Mrs Dyer trading as the Appellant had been operating as a contractor within the CIS since the tax year ended 5 April 2008.
5.	CIS monthly returns were due for the months 5 November 2007 to 5 July 2008 and 5 October 2008 but were all submitted late. The schedule provided by HMRC showed that the majority of the late returns were received on 23 July 2008 and the others for 5 November 2007, 5 July 2008 and 5 October 2008 were all a few days late.
6.	The late submission of these ten returns resulted in forty-four separate £100 penalties being imposed.
7.	The Appellant’s agent appealed on 16 March 2009 on the basis that all the returns were made on time and that there were no outstanding returns to date although they were unable to provide any proof of postage. 
8.	The agent also indicated that the Appellant had telephoned HMRC to inform them that they had no subcontract labour for that tax year. However this is not acceptable as under CIS it is necessary to report every month. If the return is nil then this can be reported verbally within the time allowed, if not a written return is required.
9.	HMRC noted from their records that the Appellant had contacted HMRC debt management on 15 October 2008 to apologise for the late returns and to inform them that all the returns were now complete and would be posted. At that time it was not claimed that they had already been posted and had been lost in the post.
10.	A request for a review was made on 8 June 2009 and HMRC issued their conclusion of the review on 23 June 2009 upholding the original decision to impose the penalties.
11.	An appeal was submitted to the Tribunal Service on 1 July 2010.
The Law
12.	Regulation 4 of The Income Tax (Construction Industry Scheme) Regulations 2005 states:
Monthly return
(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), and
(b)not later than 14 days after the end of the tax month following the appointed day, by a contractor who has made a payment in the 12 months preceding the appointed day which would be a contract payment or a payment which would be a contract payment but for section 60(4) of the Act if made after the appointed day.
(2) The return under paragraph (1) must contain the following information—
(a)the contractor’s name,
(b)the contractor’s unique taxpayer reference (UTR) and Accounts' Office reference,
(c)the tax month to which the return relates, and
(d)in respect of each sub-contractor to whom, or to whose nominee, payments under construction contracts were made by the contractor during that month,—
(i)the sub-contractor’s name;
(ii)the sub-contractor’s national insurance number (NINO) or company registration number (CRN), if known; and
(iii)the information specified in paragraph (3).
(3) The information specified is—
(a)if the sub-contractor is registered for gross payment—
(i)the sub-contractor’s unique taxpayer reference (UTR), and
(ii)the total amount of payments which would be contract payments but for section 60(4) of	the Act (contract payments: exceptions) made by the contractor to the sub-contractor during the tax month;
(b)if the sub-contractor is registered for payment under deduction—
(i)the sub-contractor’s unique taxpayer reference (UTR),
(ii)the total amount of contract payments made by the contractor to the sub-contractor during the tax month,
(iii)the total amount included in those payments which the contractor is satisfied represents the direct cost to any person other than the contractor of materials used or to be used in carrying out the construction contract to which the contract payment relates, and
(iv)the total amount deducted from the payments mentioned in paragraph (3)(b)(ii) under section 61 of the Act (deduction on account of tax from contract payments);
(c)if the sub-contractor is not registered for gross payment or payment under deduction—
(i)the sub-contractor’s unique taxpayer reference (UTR), if known,
(ii)the total amount of contract payments made by the contractor to the sub-contractor during the tax month,
(iii)the total amount included in those payments which the contractor is satisfied represents the direct cost to any person other than the contractor of materials used or to be used in carrying out the construction contract to which the contract payment relates,
(iv)the total amount deducted from the payments mentioned in paragraph (3)(c)(ii) under section 61 of the Act, and
(v)the verification reference for higher rate deduction.
(4) The return may be transmitted electronically to the Commissioners for Her Majesty’s Revenue and Customs.
(5) The return must include a declaration by the person making the return—
(a)that none of the contracts to which the return relates is a contract of employment;
(b)indicating whether he has complied with the requirements of regulation 6 (verification etc of registration status of sub-contractor) in the case of each person to whom a payment to which the return relates is made; and
(c)that the return contains all the information, particulars and supporting information required by this regulation to be included in the return, and such information, particulars and supporting information are complete and accurate to the best of the contractor’s knowledge and belief.
(6) If the return is not transmitted electronically, it must be signed by the contractor or a person duly authorised by the contractor to make the return.
(7) The contractor must make and keep such records as will enable him to comply with this regulation.
(8) The contractor must give the following information in writing to the sub-contractor to whom it relates not later than 14 days after the end of the tax month either in respect of the total payments made in that month or in respect of each payment made in that month—
(a)if the sub-contractor is registered for payment under deduction—
(i)the contractor’s name,
(ii)the contractor’s employer’s reference,

(iii)the tax month to which the payments relate or the date of the payment,
iv)the sub-contractor’s name,
(v)the sub-contractor’s unique taxpayer reference (UTR),
(vi)the total amount of contract payments made by the contractor to the sub-contractor during the tax month,
(vii)the total amount included in those payments which the contractor is satisfied represents the direct cost to any person other than the contractor of materials used or to be used in carrying out the construction contract to which the contract payment relates, and
(viii)the total amount deducted from the payments mentioned in paragraph (vi) under section 61 of the Act;
and
(b)if the sub-contractor is not registered under Chapter 3 of the Act, the verification reference.
(9) The information required under paragraph (8) may be given by means of electronic communications if—
(a)the contractor has indicated to the sub-contractor that he intends to use electronic communications for the purposes of giving this information;
(b)the sub-contractor has consented to information being given by the contractor by means of electronic communications, and that consent has not been withdrawn;
(c)the information is given in an electronic format—
(i)in which the statement may be stored; and
ii)which permits a paper copy of the information contained in the statement to be printed.

(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(1) (special penalties in the case of certain returns) applies to the requirements in—
(a)paragraph (1),
(b)paragraph (3)(b),
(c)paragraph (3)(c),
(d)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 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.

13.	Section 98A (2)(a) of the Taxes Management Act 1970 (“TMA”) provides for penalties to be charged where a contractor fails to submit a return by the due date.
14.	Section 118(2) TMA states that where a person had a reasonable excuse for not doing anything which was required to be done, he shall be deemed not to have failed to do it if he did it without reasonable delay after the excuse ceased.
15.	Section 100 TMA permits an authorised officer of HMRC to determine penalties under the Taxes Acts.

Appellant’s Submissions
The Appellant’s agent submitted that all the returns for the periods in question were not received. Mrs Dyer of the Appellant had confirmed that she had returned all the returns she was sent.
11	Mrs Dyer had verbally told HMRC that the returns were zero as Mr Dyer had no work at the time so she presumed no returns were being sent.
12	Mrs Dyer contacted the CIS helpline on numerous occasions to inform them of the zero returns. In some instances duplicate returns were sent and Mrs Dyer duly returned them all. The CIS helpline is very difficult to contact as they appear to be so busy.
13	These are very difficult economic times and the Appellant has still not recovered.
14	The penalties are excessively penal and unnecessary as a deterrent for late returns which Mrs Dyer thought had been submitted. Mrs Dyer does not have proof of postage and did not have the facility to hand to copy the returns before posting.
15	The fault was either the postal service or HMRC for not issuing the CIS returns in the first place.
HMRC’s Submissions
16	HMRC submitted that with all the information provided to contractors within CIS the Appellant should have been aware of the new rules which included the need to submit monthly returns.
17	The returns are generated and issued automatically and they were sent to the address as shown on the Tribunal Service documentation. HMRC contended that under Section 115 of the TMA this meant that they were validly sent.
18	In the appeal on behalf of the Appellant it was conceded that neither proof of postage was obtained nor copies of the returns made. The Appellant should have ensured that adequate administrative procedures were in place. HMRC contended that it was reasonable to expect that a contractor would retain copy documents for his own records.
19	HMRC submitted that the appeal did not contain anything which showed that something exceptional had occurred which prevented the Appellant operating the CIS correctly and submitting the appropriate returns. The penalties had been correctly charged.
20	The Appellant had no reasonable excuse for the late submission of the returns throughout the period of default. 

Findings
21	The Tribunal found that the Appellant had submitted ten late returns. Although the Appellant claimed to have submitted all the returns received on time the Appellant was unable to produce any evidence to substantiate this.
22	The Appellant had kept no copies of the returns submitted and admitted that despite the regulations no zero returns had been submitted on time and only one phone call had been made to HMRC concerning their non return.
23	The returns were automatically generated by HMRC and sent to the correct address and in any event none of them were returned to HMRC as non deliverable.
24	The Tribunal found that the Appellant had failed to submit the returns on time despite the regulations and ignorance of the law is not a reasonable excuse for their non return on time.
25	The Tribunal found that the Appellant was unable to produce a reasonable excuse for the late returns.
26	The penalties are laid down by statute and HMRC have no power to overturn the will of parliament. This was confirmed in the case of Stubbs v HMRC by Special Commissioner David Demack when he stated:
“These Tribunals are a statutory creation and must apply the law as parliament enacted it; fairness and equality are not matters they can take into consideration in arriving at their decisions”.
Decision
27	The appeal is dismissed and the penalties hereby confirmed.
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.

S.M.G. RADFORD

TRIBUNAL JUDGE

RELEASE DATE:  21 JANAURY 2011