[2011] UKFTT 77 (TC)

      TC00955                                                                           

  Appeal number: TC/2010/07876

CIS – gross payment status – compliance failures – industry conditions – reasonable excuse – appeal dismissed 

FIRST-TIER TRIBUNAL

TAX 

DAVIES CONSTRUCTION	 
	Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

                                 TRIBUNAL: John Manuell (Judge)
		                                Mr Charles Baker FCA (Member)

Sitting in public at Barrack Block, 83-85 London Road, Southampton SO15 2SH on 8 December 2010

Mr Eamonn McCann, Chartered Accountant, and Mr Barry Paul Davies for the Appellant
Mr Ian Compton, HMRC Presenting Officer for the Respondents

© CROWN COPYRIGHT 2011

DECISION

1.	Mr McCann for the Appellant outlined the Appellant’s case in opening.  It was accepted that there had been all of the CIS compliance breaches alleged by the Respondents, that is, the Appellant had failed to pay his self assessment balancing payment for 2007/08, his first payment on account for 2008/09 and a late payment surcharge when due.  Accordingly he had failed the compliance test for the period.  Mr McCann however indicated that the Appellant contended that there was a reasonable excuse, namely his cash flow difficulties.  Steptoe [1992] STC 757 was a VAT case and should be distinguished on that basis.
2.	Mr Barry Paul Davies ("Mr Davies") gave evidence.  He said that he had been in the construction industry for many years.  In the past one of his most important main contractors, Drews, had allowed him to use them as a bank, drawing down £10,000 at a time.  Now even they were now slow payers.  He paid his men first.  He made arrangements as necessary, sometimes using credit cards or even his mother in law.  Few people paid within 30 days of invoice.  His overdraft limit was £3,000.  Once it had been higher but he had suffered a major investment failure.  He now had no credit cards.  Funds had come in in February 2009 as his bank statements showed but the cash had gone in and out in a few days.
3.  Cross-examined, Mr Davies said that Drews had provided him with a letter dated 13 July 2010 but the letter was referring to the past when they had changed their system.  He was not sure of exactly when they had changed their payment terms, but it was some time earlier than the date on their letter.  The amount of work from Drews varied from time to time and he could not say that it was 50% of his business.  There had been 2½ years of problems.  It was pointed out to Mr Davies that his bank statements showed that he had been in credit at the time his self assessment tax was due for payment on 31 January 2009.  He replied that within 10 days he had been in the red again because he had had to pay his suppliers and workers.   He agreed that paying HMRC had not been a priority for him at the time.
4.  Mr Compton for the Respondents relied on his skeleton argument, to which the Tribunal refers.  HMRC had provided assistance and advice to help taxpayers comply with the CIS Regulations.  HMRC maintained that the Appellant had not shown a reasonable excuse for his non compliance failures.
5.  Mr McCann accepted that the Appellant had paid late but that was the result of the state of play in the industry.  It had never been intended that such consequences would result from non compliance.  It would be catastrophic for him.  He had taken a pragmatic view, and paid his men before HMRC.
6.  The Tribunal found that Mr Davies was an honest and disarmingly frank witness.  The difficulty was that he was well aware of the consequences for the construction industry of the economic slowdown.  The letter provided from Drews simply illustrated a long standing situation.  As at February 2009 Mr Davies had received substantial payments on account, and his bank account remained in credit for much of that month.  He owed tax of £3,153.33.  He had previous experience of the CIS and so was aware of the unyielding compliance tests. 
7. Mr Davies’s situation was neither unexpected nor abnormal.  There had been no unforeseeable or sudden problem.  Rather his problem was running a substantial business with inadequate working capital.  Steptoe [1992] STC 757 remained useful guidance, was a respected decision of the Court of Appeal and could not sensibly be confined to its own facts. Whilst the Tribunal appreciated that the withdrawal of the CIS gross status would have a serious impact on the Appellant’s business, it was unable to accept that as a reasonable excuse because it would be a result and not a cause of the compliance failures.  The Tribunal finds that there was no reasonable excuse for the compliance failures.
8.  The appeal must accordingly be dismissed.
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.

JOHN MANUELL
TRIBUNAL JUDGE 

RELEASE DATE: 24 JANUARY 2011