[2011] UKFTT 279 (TC)

	TC01141

Appeal number: TC/2011/00750

Construction Industry Scheme – Penalty for late submission of monthly returns required by Regulation 4 of the Income Tax (Construction Industry Scheme) Regulations 2005 – Whether there was a “reasonable excuse” (Section 118 (2) TMA 1970) – Proportionality - Appeal dismissed

FIRST-TIER TRIBUNAL

TAX 

	A. J. FLACK LIMITED	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

		TRIBUNAL: 	J. Blewitt (TRIBUNAL JUDGE)									

The Tribunal determined the appeal on 18 April 2011 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 18 January 2011,  HMRC’s Statement of Case submitted on 23 February 2011 and the Appellant’s Reply dated 15 March 2011.

© CROWN COPYRIGHT 2011
DECISION

1.	By Notice of Appeal dated 18 January 2011, the Appellant appeals against penalties imposed for the late submission of Construction Industry Scheme (“CIS”) monthly returns for the periods ended 5 June 2010, 5 July 2010, 5 August 2010 and 5 September 2010.
The legislation

2.	The CIS became effective on 6 April 2007 and is the subject of the Income Tax (Construction Industry Scheme) Regulations 2005, SI 2005 No 2045 (the “Regulations”).
3.	Regulation 4 provides: 
(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 section61 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.
4.	Regulation 7 states:
7.—(1) A contractor must pay to the Commissioners for Her Majesty’s Revenue and Customs all amounts he was liable under section 61 of the Act to deduct on account of tax from contract payments made by him during that tax period—
(a)within 17 days after the end of the tax period, where payment is made by an approved method of electronic communications, or
(b)within 14 days after the end of the tax period , in any other case.
(2) The Commissioners for Her Majesty’s Revenue and Customs must give a receipt to the contractor for the total amount paid under paragraph (1) if asked.
(3) But no separate receipt for the total amount paid under paragraph (1) need be given if a receipt is given for the total of—
(a)the amount paid under paragraph (1),
(b)any tax deducted under the Pay As You Earn Regulations, and
(c)any earnings-related contributions (as defined by regulation 1(2) of the Social Security (Contributions) Regulations 2001(11),
paid at the same time.
5.	Section 118 (2) TMA 1970 provides:
For the purposes of this Act, a person shall be deemed not to have failed to do anything required to be done within a limited time if he did it within such further time, if any, as the Board or the Commissioners or officer concerned may have allowed; and 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 had ceased.
Background Facts
6.	This appeal concerns the penalties imposed for the late submission of 4 monthly returns:
(a)	 the return for the period ended 5 June 2010 was due on 19 June 2010 and received on 29 September 2010 with a £400 penalty imposed as a result;
(b)	the return for the period ended 5 July 2010 was due on 19 July 2010 and received on 29 September 2010 with a £300 penalty imposed as a result;
(c)	the return for the period ended 5 August 2010 was due on 19 August 2010 and received on 29 September 2010 with a £200 penalty imposed as a result;
(d)	the return for the period ended 5 September 2010 was due on 19 September 2010 and received on 23 September 2010 with a £100 penalty imposed as a result.
7.	By letter dated 1 November 2010, the Appellant’s agent, Geoff Spurr & Co, appealed against the penalties. The arguments put forward in support of the appeal can be summarised as follows:
(a)	That the penalties are excessive, totalling £1000 when the tax due for the period in question was £895;
(b)	There was no intention to defraud HMRC; the Company had not registered as a contractor as the Director was unaware that he had to;
(c)	The Company was registered when the mistake was realised and return filed immediately on receipt;
(d)	The building industry is experiencing difficulties due to the recession;
(e)	The company has been penalised for its honesty as it did not have to backdate the registration;
(f)	All tax has been paid and since registering all returns and payments are up to date;
(g)	HMRC did not process the information provided sufficiently quickly to prevent the September penalties;
(h)	Effectively only one offence has been committed and therefore the penalty should be commensurate with the oversight.
8.	HMRC responded by letter dated 9 November 2010 in which the appeal was rejected on the basis that no reasonable excuse existed. A formal review was offered to the Appellant which accepted on 12 November 2010 by the Appellant’s agent. The reasons stated as to why HMRC’s view is not accepted by the Appellant are:
(a)	The human rights principle of proportionality established in SKG (London) Ltd v The Commissioners for HMRC [2010] UKFTT 20 has not been followed;
(b)	The fact of the penalty is not disputed but the magnitude is;
(c)	None of the specific points raised in the letter to HMRC dated 1 November 2010 have been addressed.
9.	HMRC concluded its formal review on 21 December 2010 and notified the Appellant by letter of the same date that the penalties would be upheld. The reasons given by HMRC are that their records show that the Appellant commenced paying subcontractors in June 2010 but that the Appellant did not make any enquiries as to his tax obligations, specifically registering under the CIS scheme, until September 2010. HMRC contend that it is the responsibility of a contractor to ensure awareness with the rules and regulations which govern the CIS. The return for the period ending 5 September 2010 was automatically issued on 15 September 2010 when the Appellant first notified HMRC that he was operating as a contractor. It is clarified that the penalties relate to the late returns, not monthly payments and the two are separate matters. Information is annexed to the review decision as to how the amounts of the penalties charged can be reduced. 
10.	By letter of the same date, HMRC offered to reduce the penalties on the basis that a new penalty system governed by Schedule 55 Finance Act 2009 is due to be implemented in October 2011 and penalties imposed under the new system are likely to be less than those previously imposed under Section 98A Taxes Management Act 1970. In applying the new system, the Appellant would be liable to penalties totalling £800 rather than £1,000 and consequently a reduction of £200 was offered to the Appellant. 
11.	By letter dated 18 January 2011, the Appellant’s agent notified HMRC of the Appellant’s intention to appeal to the Tribunal. An offer of payment of £100 as settlement of the penalties due was made which was rejected by HMRC on 1 February 2011.
12.	The Appellant lodged his appeal with the Tribunal on 18 January 2011. The grounds relied upon are:
(a)	That the case of SKG (London) Ltd v The Commissioners for HMRC [2010] UKFTT 20 (TC/2009/12565) established that proportionality should be followed in penalty cases where there is late notification of registration as a contractor, and consequential late filing of monthly returns;
(b)	The facts of the case cited at paragraph 12 (a) above are indistinguishable in that a relatively small amount of money was paid to a contractor, the company did not realise that the payment was subject to CIS legislation and as a result of late notification monthly returns were not filed;
(c)	The penalties are disproportionate to the offence;
(d)	All taxpayers should be treated equally and HMRC should follow the established precedent.
Submissions and Decision
13.	There was no issue as to legislation applicable in this case.
14.	There was no issue that there had been late submission of 4 monthly CIS returns. The Appellant also accepts that ignorance of the law is no excuse.
15.	The submissions of the parties were helpfully set out in HMRC’s Statement of Case and the Appellant’s response.  Due to the length of the documents, I will not simply repeat the contents contained therein, but will address each issue in turn.
16.	It is submitted that the Appellant Company engaged only one subcontractor during the relevant period. HMRC are wrong to state that “subcontractors” (plural) were employed; subcontractors are self employed and by definition cannot be employed. 
17.	I accept that HMRC’s Statement of Case refers to “subcontractors” being employed. I also note that the Statement of Case goes on to clarify that the returns which were submitted late “included the details of one subcontractor and tax was due.” It appears to me that there is no dispute from the Appellant as to the facts in this case and therefore I find as a fact that this is no more than general phraseology and does not have any bearing on the issues to be determined in this case, namely whether there was a reasonable excuse and whether the Tribunal has jurisdiction to apply the test of proportionality. 
18.	The Appellant contends that no advice was given by HMRC directly to the Appellant Company as to what constitutes a subcontractor and what the Company’s obligations were under the CIS.
19.	I do not find that this constitutes a reasonable excuse. The Appellant concedes that “ignorance of the law is no defence”. It is a well established principle of case law that the onus of ensuring that all tax obligations and liabilities are met rests with the taxpayer. It was open to the Appellant to seek guidance from HMRC either from their website or via the helpline. The fact that the Appellant did not avail himself of the assistance available cannot, in my view, amount to a reasonable excuse for his ignorance as to the obligations upon him.
20.	The Appellant submits that the late submission of the monthly returns was a result of the Appellant Company failing to realise that the respective payments fell within the scheme. There was no intention on the part of the Appellant to conceal the information from HMRC.
21.	I have no reason to doubt that the Appellant had no intention to deceive or defraud HMRC. The Appellant accepts that ignorance cannot constitute a reasonable excuse and I therefore find that the Appellant’s failure to realise that payments fell within the scheme does not amount to a reasonable excuse.
22.	The Appellant states that it is not accepted that the penalties are correctly charged; HMRC confirmed the date of notification by the Appellant as 15 September 2010. It is submitted that there should have been sufficient time to set the file up to enable the Appellant to file online by the due date of 19 September 2010. Had this happened, the penalty would have been reduced. At no point did HMRC indicate the time period required to allow for registration and to set up the Appellant’s file. HMRC are therefore culpable or, alternatively this constitutes a reasonable excuse for the September 2010 penalties. There is, for the same reason, a reasonable excuse for £400 of the penalty.
23.	I do not accept that this amounts to a reasonable excuse. The onus was on the Appellant to notify HMRC that he was operating within the scheme from June 2010. When notification was eventually given to HMRC, it was, in my view, the responsibility of the Appellant to clarify his obligations and take steps to ensure the September deadline was met. The Appellant does not state that he had tried to meet the due date in September but was prevented from doing so by HMRC, rather that he was not informed of the time it would take to register and set up a file for him. Common sense dictates that time would be needed to register the Appellant and set up the Company within the scheme. It is unknown what efforts the Appellant made, once he notified HMRC that he required registration, to bring to their attention the fact that the due date in September was approaching and how this could be met. In the absence of any further information, I do not find that this constitutes a reasonable excuse. 
24.	In respect of the Appellant’s submission that, for the same reason, there is a reasonable excuse for £400 of the penalty, no explanation is given as to which part of the total penalty the £400 (for which it is contended a reasonable excuse exists) relates. I cannot see any arguable basis for this contention. A £400 penalty was imposed in respect of the return due on 19 June 2010, £300 in respect of the return due on 19 July 2010, £200 for the return due on 19 August 2010 and £100 for the return due on 19 September 2010. I do not find that there can be a reasonable excuse in respect of £400 of the total penalty, as irrespective of the time taken to register the Appellant, notification was not given to HMRC by the Appellant until 15 September 2010, by which time all deadlines, save for the September due date, had long passed.
25.	The Appellant contends that HMRC have a duty of care to taxpayers. If the correct information had been given or the system had not taken so long to operate, the penalties would potentially have been zero.
26.	I do not accept that any duty of care owed by HMRC to the Appellant negates the responsibility upon each and every taxpayer to ensure that they are aware of, and comply with their tax obligations. For the reasons already stated, I do not find that this amounts to a reasonable excuse.
27.	It is submitted that the reference to payments, particularly PAYE, in HMRC’s statement of case is misleading as the letter from HMRC to the Appellant dated 21 December 2010 specifically states that the penalties were imposed for late submission of return, not payment and that the two issues should not be confused.
28.	The reference to PAYE in HMRC’s Statement of Case reads as follows:
“HMRC consider it to be the responsibility of the Taxpayer or Contractor to ensure that tax affairs are up to date, and that returns are submitted and this includes the paying over of CIS and PAYE deductions by the due date.”
The Statement of Case goes on to state:
“The Appellant has incurred the penalties because he failed to file the returns on time”
I do not accept that the Statement of Case is misleading in any way; an overview is given of the Construction Industry Scheme, the specific details of the Appellant’s case are then addressed. There is no dispute in this case as to the fact that the penalties were incurred for the late filing of monthly returns. This was clearly stated in HMRC’s letter to the Appellant dated 21 December 2010 and again in the Statement of Case. I do not accept that this provides the Appellant with a reasonable excuse or that there has ever been confusion on the part of the Appellant or his agent such as to cause any prejudice.
29.	HMRC’s interpretation of Regulation 7 of the Regulations is not accepted. The Appellant contends that the reference to payment is within 14 days after the end of the period (i.e. not month) to which it relates. Therefore if the monthly payments (PAYE, CIS and NIC) are less than £1,500 then payments can be made quarterly.
30.	Regulations 4 and 7 are set out at paragraphs 3 and 4 above. The Regulation applicable in this case is Regulation 4 which stipulates the requirements as to the making of returns “not later than 14 days after the end of every tax month” (emphasis added). The penalties were imposed as a result of the Appellant failing to satisfy this clear obligation. Regulation 7 deals with payments due to HMRC, which does not have any bearing on the penalties appealed in this case.
31.	It is submitted that no evidence has been provided by HMRC that, as a result of the penalties, the CIS has been operating more efficiently. The Appellant relies upon Enersys Holdings UK Ltd v The Commissioners for HMRC [2010] UKFTT 20 (TC) as per Judge Bishopp at paragraphs 67, 68 and 69:
“What is not clear, either from the Greengate Furniture decision or from any other material put before me, is whether the scheme is materially assisted in its purpose by the fixed nature of the penalty, regardless of the period of delay, the absence of any upper limit and the exclusion of a power to mitigate...
... I was nevertheless left with no material to counter Mr Conlon’s point that, while the system for penalising other delays in the accounting for and payment of taxes does allow for correspondence of the penalty with the period of delay, mitigation and, in some cases, an upper limit to the penalty, this scheme, for no evident reason, does not...
I am quite willing to accept—indeed experience of its operation tells me—that the default surcharge regime, by and large, produces a fair penalty, or at least one which is not obviously disproportionate to the offence, albeit I have particular misgivings about the absence of any correlation between the period of delay and the amount of the penalty. But, as I have indicated, the penalty imposed in this case is in my view wholly disproportionate to the gravity of the offence—it is, as Simon Brown LJ put it in Roth, “not merely harsh but plainly unfair”—and I am not persuaded, in the absence of any justification of it, that it can be saved by the state’s margin of appreciation. It is, in my view, one of those exceptional cases which the tribunal had in mind in Greengate Furniture” (emphasis added).
32.	In my view, the case of Enersys is distinguishable on three grounds; first, it dealt with a wholly different tax regime, namely VAT default surcharge; second, the CIS scheme with which we are dealing in this appeal, does allow for correspondence of the penalty with the period of delay and mitigation; the penalty increasing as the default period continues as opposed to applying a percentage of tax owed without any allowance for correlation between the period of delay and the amount of the penalty; and third, the case of Enersys was, in the Judge’s own words “one of those exceptional cases” on the basis that the Company incurred a penalty of £131,881 for submitting a return one day late.
33.	I do not accept that a similar approach can be taken in this appeal; there are no exceptional circumstances existing in relation to the reason why the Appellant submitted returns late or the amount of the penalty imposed. The issue raised in the case of Enersys was whether “the scheme is materially assisted in its purpose by the fixed nature of the penalty, regardless of the period of delay, the absence of any upper limit and the exclusion of a power to mitigate”(emphasis added). I am not persuaded, for the reasons that I have distinguished the case of Enersys, that the lack of evidence provided by HMRC as to whether the scheme has been operating more efficiently justifies following the exception approach adopted in Enersys.
34.	The Appellant relies upon SKG (London) Ltd v The Commissioners for HMRC [2010] UKFTT 20 in support of his contention that the penalty, which is more than double the tax paid late, outweighs any conceivable loss to the state. The Appellant submits that the Company accounts provided show that the penalty imposes an excessive burden on the Company and call its solvency into question. The Appellant notes that it is extraordinary that HMRC state that penalties can only be set aside where there is a reasonable excuse, yet HMRC also state, in their Statement of Case, that penalties can be set aside where there has been an administrative error, as happened in SKG (London) Ltd. The Appellant does not accept that an administrative error which led to the conclusion of the appeal in SKG (London) Ltd affects the precedent which it submits was set in that case. An advantage should not be given to one taxpayer simply because a mistake had been made.
35.	It is submitted that the penalties are disproportionate to the offence and in breach of the Appellant’s human rights. The Appellant accepts that HMRC cannot test the issue of proportionality in the context of the CIS, however it is submitted that the Tribunal does have such power, with reference to Article 1 to the First Protocol of the ECHR. The Appellant refers to upon Enersys Holdings UK Ltd v The Commissioners for HMRC which although addressed the issue of VAT penalties, the Appellant contends is equally applicable to CIS penalties.
36.	I will address the points raised by the Appellant as to proportionality and the principles established by the cases cited together. 
37.	Turning first to the case of SKG (London) Ltd which adjourned effectively part heard to hear further submissions on the issue of proportionality specifically relating to penalties imposed under the CIS, Judge Walters QC stated:
“At the end of the hearing we reserved our decision, informing the parties that we would consider the point of whether there was any overarching requirement for the penalties in issue to be proportionate to the relevant default and, if appropriate, list the appeal for further argument.  Neither Mr. Culverhouse nor Mr. O’Leary was, perfect understandably, in a position to address argument to us on this point at the hearing
We have considered the decision of the VAT and Duties Tribunal (Chairman: Theodore Wallace) in Greengate Furniture Ltd. v Customs & Excise [2003] UKVAT V18280 (11 August 2003).  That decision (as the first paragraph states) was concerned with the proportionality...In particular, it concerned the absence of a power to mitigate the penalties.
Whereas it might be difficult to conclude that a late filing penalty in relation to a return of actual payments made by a contractor within the CIS was “devoid of reasonable foundation”, the position is or may be different in relation to the penalties attaching to successive nil returns which are required to be made under regulation 4(10) of the Regulations.  
...The Tribunal is left in doubt as to whether or not the statutory provisions for the penalty for late filing of a return under regulation 4 of the Regulations and the defence of reasonable excuse provided by section 118(2) TMA, without an explicit power in the Tribunal (or HMRC) to mitigate the penalty, satisfy the requirements of the Human Rights law principle of proportionality.”
38.	The case came back before the same Tribunal on 18 February 2010 on which date HMRC withdrew the penalties appealed against with the consequence that the appeal was allowed. It is submitted by HMRC that the reason for withdrawing the penalties was due to an administrative error. I do not accept the Appellant’s submission that the taxpayer in SKG (London) Ltd was given an advantage due to HMRC’s error and that HMRC’s mistake as a result was capable of overriding the law. I can only infer that the error made was fatal to HMRC’s case, which in itself could have been a matter of law. I find that it would be unsafe to adopt the comments made in SKG (London) Ltd on the issue of proportionality (particularly in the absence of any findings having been made) or make findings as to the effect of an “administrative error” without any details being known.
39.	I have read carefully the comments made by Judge Walters QC. In my view, the case of SKG (London) Ltd cannot be said to have established a precedent on the issue of proportionality as no findings or conclusions were reached. It is clear to me that the Judge was cautious to making any findings on the issue of proportionality without hearing full submissions; however this stage was not reached as a result of HMRC withdrawing the penalties.
40.	It must also be borne in mind that the Appellant’s case can be distinguished from SKG (London) Ltd. In the case before me, tax was owed, however in SKG (London) Ltd the taxpayer’s obligation arose under Regulation 4 (10) of the Regulations (which provides for nil returns); Judge Walters QC commented that:
“...it might be difficult to conclude that a late filing penalty in relation to a return of actual payments made by a contractor within the CIS was “devoid of reasonable foundation.”
41.	The case before me can also be distinguished by having regard to Judge Walters QC’s comment that in considering the case of Greengate Furniture Ltd. v Customs & Excise [2003] UKVAT V18280, it was borne in mind that the specific concern was the absence of a power to mitigate the penalties (which was also highlighted as the concern of Judge Bishopp in the case of Enersys) which differs from the case before me in that the penalties imposed on the Appellant were not fixed, but that they reflected an ongoing period of delay and that HMRC have used the powers available to them to mitigate the penalties. 
42.	I take the view that case law has made clear that proportionality is not an issue upon which, in the case of a penalty under the CIS, this Tribunal has any jurisdiction to adjudicate and in the absence of any exceptional circumstances, I do not find that the penalty imposed can be said to be so wholly unfair as to allow me to adopt the unusual course taken in Enersys. 
43.	The issue is solely one of whether there is a reasonable excuse. I find that in determining the issue of reasonable excuse, the wording clearly relates to whether there is a reasonable excuse for the failure to comply with obligations, not to the consequences of having failed to comply. I therefore do not accept that the burden placed on the Appellant as a result of the imposition of the penalty can amount to a reasonable excuse.
44.	I find that there was no reasonable excuse and the appeal is dismissed. The penalty is upheld in the sum as mitigated by HMRC.
45.	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.

TRIBUNAL JUDGE
RELEASE DATE: 28 APRIL 2011