[2011] UKFTT 303 (TC)

TC01165

Appeal number: TC/2010/07926

Construction Industry Scheme – late monthly return – postal delay – whether reasonable excuse – yes – appeal allowed

FIRST-TIER TRIBUNAL

TAX 

	MR ALAN THOMAS DAVIES	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

		TRIBUNAL: 	MICHAEL S CONNELL (TRIBUNAL JUDGE)									

Sitting in public at Cunard Building, Liverpool, L3 1TS  on 7th February 2011

Mr A H Thomas FCA for the Appellant, who did not attend

Ms S Whitley, Higher Officer of HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2011

DECISION

1. This is an appeal by the Appellant against a penalty of £100 imposed for the late submission of a monthly Construction Industry Scheme (C I S) return ("C I S return") for the month ended 5 June 2010.

2. The Appellant has traded within the new Construction Industry Scheme and employed subcontractors since the scheme began on 6 April 2007. 

3. A return period runs from the 6th of one month to the 5th of the next and a contractor must send a completed contractors return and remit the payment due for each month return period to reach HMRC by the 19th of the month (“the filing date”) in which the return period ended (the Income Tax (Construction Industry Scheme) Regulations 2005 Regulation 4(1)).

4. If a return is not received by the filing date, late filing penalties are chargeable each month for each outstanding return at £100 a month per return in accordance with section 98A (2) (a) of the Taxes Management Act (TMA) 1970.

5. HMRC say that the Appellant’s CIS payment was received by 19 June 2010 but that the monthly return was not received until 22 June 2010.

6. Mr Thomas on behalf of the Appellant said the Appellant had attended at his local village post office (at Gresford, Wrexham County Borough) in person on Tuesday, 15 June 2010 for the sole purpose of posting of his cheque in payment of his CIS tax liability and his CIS monthly return for the period ended 5 June 2010. The return was sent by weighed large letter post to the usual HMRC address at RDC Netherton, Comben House, Farriers Way, Netherton, Bootle, where CIS returns are required to be submitted. The cheque was sent by first class post to the usual HMRC payment centre at a different address. 

7. Mr Thomas said that the Appellant asked a member of staff of the post office for three first-class stamps so that he could send off the return and mentioned that it was essential that the envelope had sufficient postage in order that the return would reach HMRC by 19 June. The staff member told the Appellant that he did not need to put so many stamps on the envelope. The envelope was weighed and the required postage paid. Mr Thomas said that the Appellant deliberately did not delegate the task to a member of his staff because he was aware of the importance of a monthly return arriving on time. Mr Thomas agreed that it was unfortunate the Appellant had not asked for proof of postage but said that was because the Appellant assumed that proof of postage would not be necessary having posted the cheque and return four clear days before the filing date.

8. The Appellant was advised by his bank (Nat West bank) that his cheque had cleared through his account on 22 June 2010 and that a cheque would need to have been paid into HMRC’s account (Co-op bank) at the latest by Friday, 18 June 2010 in order for this to happen. The Appellant says that this shows that the cheque - and therefore his return - were posted in good time to reach HMRC by 19 June 2010.  

9. HMRC contend that although the Appellant’s cheque was received by 19 June 2010, the cheque and the return were posted to different addresses and the date of receipt of the CIS payment has no bearing on the appeal. HMRC also say that the Appellant, as a contractor trading within the Construction Industry Scheme, was aware of the strict time limit within which a return should be submitted and that the appeal does not contain anything which shows that something exceptional prevented the Appellant from operating the scheme correctly and submitting the return in time.

10. HMRC say that a contractor is obliged to ensure that a return reaches HMRC by the 19th of the month and that a return should be sent using the large letter postage rate (rather than standard first-class postage) to ensure the return is not delayed within the postal system. HMRC say that there is no doubt that the return was received late because standard operating procedures are used on receipt of a paper return, which is to batch all returns received per day so that the date of receipt of a return is the date it is batched by HMRC, which in this case was 22 June 2010. However HMRC do not retain envelopes which would bear the date of postage. 

11.  HMRC say that this was not the first occasion on which the issue of a late return had arisen. In July 2007 the Appellant’s return was late, having been received on 23 July. This was shortly after the implementation of the new CIS Scheme, and no penalty was levied. The Appellant was however advised in an educational letter that large letter postage should be used for the filing of returns. Again, in May 2009, the Appellant’s return was received on 22 May and a penalty was issued. However, HMRC accepted the Appellant’s grounds of appeal, that there had been a postal delay, but warned that should there be any further appeals based on postal delays, appropriate proof of posting would be required. That, HMRC say, would put a reasonable tax payer on particular notice to ensure that the risk of postal delays was minimised and that proof of posting should be routinely obtained. The legislation has imposed penalties for the late filing of contractors' returns in order to promote the efficient operation of the taxation system.  Although proof of postage is not a legislative requirement, in cases where grounds for a reasonable excuse are cited as postage delays, it is reasonable to expect that some evidence of actual postage is provided.

12. The appeal against the penalty was on the grounds that the late return was due to delays on the part of Royal Mail rather than an intentional or inadvertent failure to comply with filing deadline. The Appellant’s recent history indicated that he had ensured that previous CIS monthly returns were submitted on a timely basis. Mr Thomas said the Appellant was “paranoid” about ensuring compliance with the CIS regulations because his CIS gross payment status depended on full compliance. He said that the Appellant could not have done any more than he did, attending personally at a post office and seeking the assistance of the counter staff in order to ensure that the postage for both the cheque and the return was sufficient. He had taken reasonable steps to ensure his reporting responsibilities were met. He said that had HMRC retained the envelope in which the return was sent, this would clearly show the date of postage and whether or not the large letter postage rate had been used.

13. Although the Appellant could not produce proof of postage and it is not known whether the postage paid by the Appellant was first class letter postage or large letter postage, one would have expected it to be the latter because the member of staff would be conversant with the postage payable on a “large letter” rather than a “letter” and the postage payable for the applicable weight range. The fact that the envelope was weighed indicated that it must have been posted using the large letter postage rate. That being the case, one would normally have expected next day delivery.

14. The Tribunal accepted the evidence in correspondence that the Appellant had attended at his local post office on 15 June 2010, so as to ensure that the correct postage was paid. Although the Appellant’s evidence was uncorroborated, the evidence is referred to as being verified by the independent third party evidence of the post office staff. The cheque for the CIS payment had reached HMRC in good time and the Tribunal found it inherently improbable that the Appellant would not have posted the CIS return on the same day that he posted his CIS payment. The Appellant had relied on the advice and assistance of the post office counter staff when the envelope was weighed for large letter postage.  Although next day delivery is not always guaranteed, the Appellant had allowed at least three, and possibly four, clear days for delivery of the return. In the circumstances it was difficult to see what more the Appellant could have done to ensure delivery of the return on time. 

15. HMRC referred to the case of Hi Tech Paints Limited (2010) TC 00841 where the circumstances of the late delivery of a contractors’ monthly return was very similar. In that case the Appellant had posted its CIS cheque and return on the same day. The cheque had arrived by the 19th of the month, but the return was not received by HMRC until the 23rd of the month. The Appellant had similarly been issued with an educational letter on a previous breach of the Regulations. In that case however there were inconsistencies in the Appellant’s assertions with regard to the date the return was posted, and the Appellant had simply posted the return, presumably using normal first class postage rather than using the large letter postage rate, as the Appellant had done in this case.

16. In the particular circumstances the Tribunal found that the Appellant had shown a reasonable excuse for the late delivery of the return and therefore allowed the appeal.
 17. 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.

Michael S Connell

TRIBUNAL JUDGE
RELEASE DATE: 9 May 2011