SPC0497          
CONSTRUCTION INDUSTRY SCHEME – Appellant late with PAYE payments every month in the 3-year qualifying period – whether defaults “minor and technical” (s 565(4) Taxes Act 1988) – no – appeal dismissed

THE SPECIAL COMMISSIONERS

	GLAZE & FRAME LIMITED	Appellant

	- and -

	HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

		Special Commissioner: 	DR JOHN F. AVERY JONES CBE 

Sitting in public in London on 23 August 2005

Andrew Gotch CTA (Fellow), Professional Tax Practice Limited, for the Appellant

Nicola Parslow, HM Inspector of Taxes, Central England Appeals Unit, for the Respondents

© CROWN COPYRIGHT 2005

DECISION

1.	This is an appeal by Glaze & Frame Limited against the refusal on 23 June 2005 of the Revenue to renew its construction industry scheme certificate which expired on 31 July 2005 on the ground that the Appellant’s failures to comply with their PAYE payment obligations were not “minor and technical” and gave reason to doubt whether the Appellant would comply in the future within s 565(4).  Notice of the appeal was received by the Special Commissioners on 13 July 2005 and an expedited hearing was arranged.  The Appellant was represented by Mr Andrew Gotch, and the Revenue by Mrs Nicola Parslow.
2.	I heard evidence from Mr T Sawyer, the director and shareholder of the Appellant, Mr D Pollock of Pollock Taylor, the Appellant’s accountant, Mr J Eldridge, the Inspector who refused the certificate and, as a witness for the Revenue, Mr G Wright, distraint officer.
3.	Section 565 of the Taxes Act 1988 provides: 
“(3) The company must, subject to subsection (4) below, have complied with all obligations imposed on it by or under the Tax Acts or the Management Act in respect of periods ending within the qualifying period and with all requests to supply to an inspector accounts of, or other information about, the business of the company in respect of periods so ending. 
 (4) A company which has failed to comply with such an obligation or request as is referred to in subsection (3) above shall nevertheless be treated as satisfying this condition as regards that obligation or request if the Board are of the opinion that the failure is minor and technical and does not give reason to doubt that the conditions mentioned in subsection (8) below will be satisfied.
…
(8) There must be reason to expect that the company will, in respect of periods ending after the end of the qualifying period, comply with all such obligations as are referred to in subsections (2) to (7) above and with such requests as are referred to in subsection (3) above.”
The issue in the appeal is whether the Appellant has satisfied the two tests in subs (4) relating to the past and the future.
4.	There was an agreed statement of facts as follows:
(1)	The Appellant, Glaze & Frame Limited, is a company.
(2)	The Appellant’s registration number is 3730157.
(3)	The Appellant was incorporated on 10 March 1999.
(4)	The Registered Office is 1 York Hill, Loughton, Essex, IG10 1RL.
(5)	The sole director of the Appellant is Mr T A Sawyer.
(6)	The 100% shareholder of the Appellant is Mr T A Sawyer.  
(7)	The Appellant succeeded to the trade previously carried on by Mr T A Sawyer as a sole trader on 1 May 1999 and commenced trading on that date.
(8)	The business address of the Appellant is 388 Harrow Road, London, W9 2HU.
(9)	The Appellant was issued with a Subcontractor’s Tax Certificate (CIS6) on 13 July 1999.
(10)	On 21 June 2002 the Appellant made an application on form CIS85 (Company) to renew its Subcontractor’s Tax Certificate (CIS6).
(11)	The application was signed by Paul Walsh, as Company Secretary of the Appellant.
(12)	Payments were made by the Appellant in respect of its liabilities under the PAYE system and in respect of its Corporation Tax liabilities as follows during the qualifying period in relation to the application mentioned at (10) above:
1999/2000
Month	Due Date	Date Paid	Tax/NIC £	Days Late	
2	19/06/1999	10/07/1999	2988.25	21	
3	19/07/1999	28/07/1999	4318.58	  9	
4	19/08/1999	03/09/1999	3765.66	15	
5	19/09/1999	01/10/1999	3904.37	12	
6	19/10/1999	29/10/1999	5061.72	10	
7	19/11/1999	26/11/1999	4581.83	  7	
8	19/12/1999	05/01/2000	5731.70	17	
9	19/01/2000	02/02/2000	4100.52	14	
10	19/02/2000	11/03/2000	4298.00	20	
11	19/03/2000	19/04/2000	4299.62	31	
12	19/04/2000	16/05/2000	5514.24	27	
					
2000/201	
Month	Due Date	Date Paid	Tax/NIC £	Days Late	
1	19/05/2000	17/06/2000	4560.52	29	
2	19/06/2000	08/07/2000	4421.30	19	
3	19/07/2000	03/08/2000	5769.14	15	
4	19/08/2000	09/09/2000	5287.38	21	
5	19/09/2000	07/10/2000	5018.63	18	
6	19/10/2000	04/11/2000	5851.85	16	
7	19/11/2000	07/12/2000	5373.97	18	
8	19/12/2000	03/01/2001	6253.63	15	
9	19/01/2001	31/01/2001	5611.06	12	
10	19/02/2001	08/03/2001	5807.93	17	
11	19/03/2001	05/04/2001	6771.74	17	
12	19/04/2001	11/05/2001	7231.78	22	
					
2001/2002	
Month	Due Date	Date Paid	Tax/NIC £	Days Late	
1	19/05/2001	05/06/2001	5906.20	17	
2	19/06/2001	04/07/2001	6930.83	15	
3	19/07/2001	07/08/2001	7783.44	19	
4	19/08/2001	01/09/2001	5841.03	13	
5	19/09/2001	03/10/2001	6148.16	14	
6	19/10/2001	31/10/2001	7013.06	12	
7	19/11/2001	04/12/2001	5741.82	15	
8	19/12/2001	03/01/2002	6951.61	15	
9	19/01/2002	29/01/2002	5746.40	10	
10	19/02/2002	05/03/2002	5004.12	14	
11	19/03/2002	10/04/2002	6223.17	21	
12	19/04/2002	11/05/2002	9880.88	22	
					
Corporation Tax 			
AP	Due Date	Date Paid	Amount £	Days Late	
31/03/2000	01/01/2001	09/01/2001	14199.80	    8	
31/03/2001	01/01/2002	23/04/2002	24669.80	112	
(13)	A CIS6 Certificate was authorised on 12 August 2002.
(14)	On 6 June 2005 the Appellant made an application on form CIS85 (Company) to renew its CIS6.
(15)	The application was signed by Paul Walsh, as Company Secretary of the Appellant.
(16)	Payments were made by the Appellant in respect of its liabilities under the PAYE system and in respect of its corporation tax liabilities as follows during the qualifying period in relation to the application mentioned at (14) above as follows:

Year
2002/03	Due Date	Date Paid	Tax £	NIC £	Days Late	
Month 2	19-Jun-02	12-Jul-02	3,773.68	3,890.01	23	
Month 3	19-Jul-02	22-Aug-02	4,586.38	4,938.84	34	
Month 4	19-Aug-02	06-Sep-02	3,283.15	3,618.32	18	
Month 5	19-Sep-02	08-Oct-02	3,577.47	3,725.32	19	
Month 6	19-Oct-02	05-Nov-02	4,608.74	4,862.44	17	
Month 7	19-Nov-02	03-Dec-02	3,640-00	4,083.88	14	
Month 8	19-Dec-02	04-Jan-03	5,034.04	5,384.76	16	
Month 9	19-Jan-03	04-Feb-03	3,945.21	4,050.13	16	
Month 10	19-Feb-03	04-Mar-03	3,489.48	4,098.35	13	
Month 11	19-Mar-03	01-Apr-03	2,914.02	4,166.06	13	
Month 12	19-Apr-03	14-May-03	4,891.14	5,391.30	25	
						
2003-04						
Month 1	19-May-03	03-Jun-03	3,879.39	4,463.27	15	
Month 2	19-Jun-03	08-Jul-03	4,052.02	4,625.25	19	
Month 3	19-Jul-03	09-Aug-03	5,062.05	5,803.46	21	
Month 4	19-Aug-03	02-Sep-03	4,322.97	5,243.85	14	
Month 5	19-Sep-03	07-Oct-03	4,701.36	5,347.21	18	
Month 6	19-Oct-03	13-Nov-03	5,309.66	6,033.94	25	
Month 7	19-Nov-03	11-Dec-03	4,377.43	4,966.46	22	
Month 8	19-Dec-03	17-Jan-04	5,649.81	6,498.45	29	
Month 9	19-Jan-04	11-Feb-04	5,196.68	5,550.07	23	
Month 10	19-Feb-04	09-Mar-04	4,442.34	5,297.91	19	
Month 11	19-Mar-04	20-Apr-04	4,480.88	5,218.40	32	
Month 12	19-Apr-04	15-May-04	6,501.34	7,421.95	26	
						
2004-05						
Month 1	19-May-04	12-June-04	5,081.69	5,858.89	24	
Month 2	19-Jun-04	05-Jul-04	5,316.68	5,999.85	16	
Month 3	19-Jul-04	04-Aug-04	6,358.17	7,250.84	16	
Month 4	19-Aug-04	02-Sep-04	5,477.02	6,133.95	14	
Month 5	19-Sep-04	06-Oct-04	4,620.84	5,441.93	17	
Month 6	19-Oct-04	09-Nov-04	6,702.63	7,568.31	21	
Month 7	19-Nov-04	09-Dec-04	5,386.24	6,286.49	20	
Month 8	19-Dec-04	08-Jan-05	6,387.45	7,239.12	20	
Month 9	19-Jan-05	03-Feb-05	6,255.21	6,378.98	15	
Month 10	19-Feb-05	04-Mar-05	4,363.50	5,334.06	13	
Month 11	19-Mar-05	12-Apr-05	4,918.21	5,625.74	24	
Month 12	19-Apr-05	20-Apr-05	1,529.85	1,363.63	  1	
						
2005-06						
Month 1	19-May-05	21-May-05	5,327.57	5,563.87	  2	

Corporation Tax
Accounting Period Ended	Due Date	Date Paid	Tax	Days Late	
31-March-02	01-Jan-03	11-Feb-03	24,881.20	41	
31-March-03	01-Jan-04	03-Feb-04	45,085.86	33	
31-March-04	01-Jan-05	01-Feb-05	24,797.47	31	
(17)	The following actions have been taken to collect the PAYE liability:

Year	Month	Issue of Reminder
IDMS1	Issue of P101	Visit to Business Premises Made	
2002-2003	2	01-Jul-02	10-Jul-02		
	3	29-Jul-02	07-Aug-02		
	4		23-Aug-02		
	5	30-Sep-02			
	6	29-Oct-02			
	7	29-Nov-02			
	8	30-Dec-02			
	9	29-Jan-03			
	10	03-Mar-03			
	11	31-Mar-03			
	12	29-Apr-03	08-May-03		
					
2003-2004	1	29-May-03			
	2	30-Jun-03			
	3	30-Jul-03	08-Aug-03		
	4	29-Aug-03			
	5	29-Sep-03			
	6	29-Oct-03	07-Nov-03		
	7	01-Dec-03	10-Dec-03		
	8	30-Dec-03	08-Jan-04		
	9	30-Jan-04	09-Feb-04		
	10	01-Mar-04			
	11	29-Mar-04	07-Apr-04	19-Apr-04	
		DN1			
	12	21-Apr-04
DN3
28-Apr-04 & 17-May-04
Distraint Letter
11-May 04			
					
2004/2005	1		24-May-04		
	2		23-Jun-04	05-Jul-04	
	3		23-Jul-04		
	4		23-Aug-04		
	5		24-Sep-04		
	6		25-Oct-04		
	7		23-Nov-04	07-Dec-04	
	8		23-Dec-04		
	9		24-Jan-05	02-Feb-05	
	10		23-Feb-05		
	11		23-Mar-05	11-Apr-05	
	12				
					
2005/2006	1				
(18)	On 23 June 2005 the Inspector gave a Notice of his decision that he was unable to grant a Certificate.
(19)	On 29 June 2005 Pollock Taylor appealed against the Inspector’s decision on behalf of the Appellant.
5.	I find the following additional facts:
(1)	The Appellant is a glazing contractor with a turnover of £1.5m employing 20 people.  About 80% of its work is contracting (of which 60% to 70% is for Ealing Family Housing Association), and 20% retail.  A CIS certificate is necessary to its contracting business.  The Housing Association has written to the Appellant saying that in the absence of a certificate it will not continue to engage the Appellant because of the extra administrative work that would be entailed.
(2)	Mr Pollock’s firm calculates the PAYE deductions using a bureau and makes the payments to employees on the Appellant’s behalf by BACS.  It gives Mr Sawyer the PAYE figure by about the 5th of the following month.  Mr Sawyer pays the PAYE with the other monthly creditors.  The cheques are prepared at the end of the month and sent out in batches over the following days, which accounts for the payment dates shown above.  He is aware of the 19th of the following month being the due date for payment of PAYE but his established pattern of payments has continued with only computer generated letters from the Revenue which he did not see personally as the post was opened by his assistant who, being aware that PAYE payments were in hand, did not bring these to Mr Sawyer’s attention.  Form IDMS1 (see paragraph 4(17)) is a reminder sent immediately if payment is not received by the 19th of the month saying “It is most important that you make payment immediately if recovery proceedings are to be avoided.”  Form P101 states that payment must be made within 7 days and “If you do not do so the specified amount may be recovered by Distraint without further warning.”  The Appellant had the funds to pay on time but did not realise the importance of doing so.  
(3)	Mr Pollock described Mr Sawyer’s attitude to compliance of his tax obligations as being as good as it could possibly be, particularly when compared to other clients in the industry.  Mr Sawyer often put his firm under pressure to do compliance work quickly.  Apart from the delays in making the PAYE payments, which was unknown to him as the payments were made by the Appellant, the record in relation to other tax obligations was excellent.
(4)	Mr Wright, distraint officer, made the visits on 5 July 2004, 7 December 2004 and 2 February 2005.  On the second of those visits he was shown details of the cheque previously posted.  He says that on that visit he warned of distraint action if the cheque was not received.  He also says that he warned that on the due date a P101 would be issued giving 7 days to pay after which he would start to take distraint action, the nature of which he explained.  He thought that he met the same person on his third visit, which Mr Sawyer agrees was himself.  Mr Sawyer says (and I accept) that he remembers two different people calling on different occasions to pick up cheques but he was not the person that Mr Wright met on 7 December 2004.  He also says that his assistant had no recollection of the visit.  As I have not heard evidence from the assistant I find that Mr Wright did make the explanations to the assistant, and was mistaken when he says that he thought he met the same person on the third visit.  Unfortunately these warnings were not passed on to Mr Sawyer.  On one occasion when a letter was received from the collector about a payment that they had already made Mr Sawyer was made aware of this and he telephoned the collector.
(5)	Mr Eldridge, the Inspector who refused the certificate, considered the Appellant’s history of returns and payments and in the light of the guidance in IR40 concluded that the defaults were not minor and technical and so did not need to consider the test relating to the future in s 565(4) and (8).  There was no place on the application form for explanations about defaults but if an explanation had been given after the refusal and appeal he would have considered it and would have been able to allow the appeal by agreement.  No explanations were ever received from the Appellant.  (Mr Gotch explained that having received the refusal he thought that there was no point in making further representations and was progressing the appeal.)  Mr Eldridge was not aware of the circumstances relating to the issue of the previous certificate.
6.	Mr Gotch contends: 
(1)	The refusal to issue a certificate is inconsistent with the policy purpose of the legislation in question.
(2)	It is not in the interest of public policy for the Revenue arbitrarily to change its approach to dealing with a taxpayer without notice when circumstances remain unchanged.
(3)	The failure of the Appellant was minor and technical.
(4)	The Appellant’s failure gives no reason to doubt that it will comply with its obligations under s 565(3) in the future.
(5)	The statute requires the exercise of a discretion by the Inspector and the Inspector has failed to exercise his discretion properly or at all.
7.	Mrs Parslow contends: 
(1)	The Inspector properly applied the statutory tests; and his decision was properly arrived at.
(2)	During the qualifying period all 36 PAYE payments due were late.  Out of the 36 late payments, 28 were made more than 14 days late.  There were 3 Corporation Tax payments due in the qualifying period.  All three payments were made late.
(3)	The inspector correctly found that there were failures, that the failures were not minor and technical and that there was no reason to expect future compliance.
8.	I consider Mr Gotch’s 5 contentions in turn.
Policy of the legislation
9.	Mr Gotch referred to Shaw v Vicky Construction Ltd (2002) 75 TC 26, where Ferris J described the policy of the legislation as follows at [3]-[4]:
“In the absence of the statutory provision with which this appeal is concerned Vicky would be entitled, like any other sub-contractor, to be paid the contract price in accordance with its contract with the contractor without any deduction in respect of its own tax liability.  However it became notorious that many sub-contractors engaged in the construction industry “disappeared” without settling their tax liabilities, with a consequential loss of revenue to the exchequer.  In order to remedy this abuse Parliament has enacted legislation, which goes back to the early 1970’s, under which a contractor is obliged, except in the case of a sub-contractor who holds a relevant certificate, to deduct and pay over to the Revenue a proportion of all payments made to the sub-contractor in respect of the labour content of any sub-contract”.
Lightman J described the purpose of the legislation in similar terms in Hudson v JDC Services Ltd [2004] STC 834 at [3]:
 “A special regime is laid down governing payments to such sub-contractors (as therein defined) which originated in ss 29 and 30 of the Finance Act 1971 (‘‘the 1971 Act’’) and was designed to clamp down on the practice prevalent at the time of subcontractors evading the payment of tax.  That regime requires contractors (again as therein defined) to deduct on account of tax from payments which they make to sub-contractors and to pay over the Revenue a proportion of all payments made to sub-contractors in respect of labour unless the sub-contractors possess a CIS Certificate.  The exception is framed to exclude from the regime payments to sub-contractors where there is no substantial risk of evasion and to whom (as evidencing the absence of such risk) CIS Certificates have been issued”.
10.	Mr Gotch contended that the consistent theme is that the policy purpose of the legislation is to prevent abuse of the tax system by the evasion of tax.  In the case of GF, there is no suggestion that any tax is at risk.  PAYE tax has been paid at monthly rests in full, and the company’s corporation tax liabilities have been paid annually in full, albeit that all payments have been made late (for which lateness the Revenue have received restitution by way of interest).  
11.	While I am sure that the policy reason for the CIS legislation in general is as Mr Gotch states, in Hudson at [15] Lightman J said of the policy of s 565 that it was “the clear policy of the legislation to require the holder of a CIS Certificate to have a good record of compliance with no failure in the past of any significance.”  My task is to construe the words of the statute in the light of this policy and consider whether the Appellant’s breaches were “minor and technical” and to consider whether they give reason to doubt that the conditions mentioned in subs (4) and (8) will be satisfied.  It is no answer to say, if the breaches are not minor and technical, that there is no risk of tax loss. 
Change in approach to the Appellant
12.	Mr Gotch contends that the Appellant has held certificates for its entire trading existence, despite failures to account for PAYE on time that were almost exactly the same in extent and quantum for the qualifying periods in relation to those certificates.  The certificate issued in 2002 was based on exactly the same legislation as is applicable now, and the defaults in the qualifying period relating to that application were indistinguishable from those relating to the current application.  The Appellant was at no time informed that its compliance was unacceptable.  He draws attention to Laddie J’s statement in Cormack v CBL Cable Contractors Limited at [33]:
 “I should mention that Mr Eicke also complains that the Commissioners erred in law in that they took into account irrelevant matters, namely the circumstances surrounding the issue of the previous Certificate….  I do not think that this takes the case any further.  First, even if this matter were irrelevant, it would not alter the fact that the other facts relied on by the Commissioners were sufficient to support their conclusion.  Second, I do not accept that this matter is necessarily irrelevant.  As Mr Goodfellow argues, the fact that the Revenue had issued a previous certificate in the knowledge of what appears to have been similar circumstances can cast some light on whether the Revenue acquiesced in CBL’s actions.  Furthermore it could be a factor which is to be put in the balance in determining whether CBL had demonstrated a cavalier attitude to its tax responsibilities or whether it was a company which took those responsibilities seriously”. 
13.	I do not consider that I can take this factor into account.  The statutory test is whether any failures to comply with the requirements of the legislation during the qualifying period are minor and technical (plus a further condition about the future).  The failures before the 2002 certificate took place outside the qualifying period and so are irrelevant to the test.  Laddie J in the passage quoted took the circumstances relating to the previous certificate into account to determine whether the Revenue had acquiesced in the breaches, which is not an issue here because Mr Wright’s evidence shows that he was not acquiescing in the Appellant’s late payments of PAYE.  I regret that I cannot understand how in the last sentence quoted above defaults outside the qualifying period can help to determine whether the taxpayer had a cavalier attitude to its tax responsibilities in the qualifying period, but I have found that the Appellant takes its tax obligations seriously.
14.	Having said that, I am concerned about this aspect of the case and I will return to it at the end of this decision.
Minor and technical
15.	In Templeton v Transform Shop Office and Bar Fitters Ltd, 15 July 2005 (not yet reported) [2005] EWHC 1558 (Ch), Hart J said at [14]:
“The expression ‘minor and technical’ is not itself a technical expression.  The process of discerning the meaning which Parliament intended to convey is not greatly assisted by considering dictionary definitions of ‘minor’ and or ‘technical.’  Still less does it assist to point out that the failure must be both ‘minor’ and ‘technical’ to qualify.  The prospect of the relevant decision maker concluding that a particular failure is minor but not technical, or vice versa, risks introducing a degree of pedantry into the test which would deprive it of all practical value save as a moot point for legal debate.  We are dealing here with a composite phrase which must be construed purposively.  The purpose which Parliament plainly had in mind was to procure strict compliance with tax obligations by making such compliance the price of obtaining a certificate.  Parliament also recognised that failures to achieve such strict compliance might be, in the context of the grant of such certificates, venial.  Whether, in a particular case, the failure is to be so regarded is a decision which (if Hudson is correct) has been left ultimately to the Commissioners to be found as a matter of fact and degree.”
Laddie J said this in Cormack v CBL Cable Contractors Limited, 15 June 2005 (not yet reported) [2005] EWHC 1294 (Ch):
27. …It seems to me that the words “minor and technical” have to be construed in their context. As Lightman J pointed out in Hudson, there are two discrete matters to be considered in applying section 565(4) (or section 562(10) in respect of individuals or section 564(4) in respect of firms). One looks to the past. The other looks to the future. As far as the former is concerned, the underlying question is whether or not the past defaults of the taxpayer have been, to use Lightman J’s words, “of any significance”. Significance in this context includes consideration of whether the defaults demonstrate a cavalier attitude of the taxpayer to his obligations under the tax legislation. Even if defaults are large or numerous in money terms, the circumstances may make them not significant for these purposes. The words “minor and technical” can have different meanings. There is nothing in the legislation to suggest that they are primarily or exclusively concerned with size and frequency. Some of the liabilities covered by the legislation are not concerned directly with the payment of money. In context “minor and technical” should be construed in a way which allows them to be used to gauge whether there is a risk that the sub-contractor will default on his tax obligations. If, for example, a company is late in paying a very large tax bill because, wrongly and in breach of its customer’s instructions, the bank on which the company’s cheque is drawn fails to honour it, the breach should be treated as minor and technical even though, from an accountant’s point of view, the sum involved was large and not minor. 
28. It seems to me that this approach is consistent with the contents of Inland Revenue Leaflet IR40. That explains the types of defaults which the Revenue considers are unlikely to meet the compliance tests. Among them is failure to keep to an instalment agreement. On the other hand, late payment of tax in compliance with an instalment agreement would not result in the refusal of a CIS Certificate. Mr Eicke accepts that such an agreement might involve the late payment of substantial sums yet, because it is done with the agreement of the revenue, the sums would still be regarded as minor. Similarly IR40 states: 
‘We will bear in mind the size of the business. If it is reliant on one person, and that person falls ill for a period of weeks or months, we will take that into account.’ 
29. This must be because the Revenue understands, correctly in my view, that the degree of culpability of the taxpayer in the default is relevant in determining whether it is minor and technical or not. 
…
32.  These statutory provisions are intended to impose a strict discipline of those in the sub-contracting industry.  But, for the reasons set out above, the question of whether a default has been more than minor or technical has to be assessed qualitatively in the light of all the circumstances…”.
16.	Mr Gotch submits that the Appellant’s failures were neither cavalier nor deliberately intended to flout the statute.  The Appellant treated its PAYE obligations like any other commercial creditor and had paid the bills as part of the Appellant’s normal monthly invoice run.  The sums due were always paid at monthly rests and in full and there has been no loss of tax.  Mr Sawyer reasonably assumed that the issue of previous certificates indicated that this regular pattern of payment was acceptable to the Revenue.  
17.	I have considered Mr Gotch’s forceful contentions carefully in view of the obvious importance of the result to the Appellant’s business.  In both Templeton v Transform Shop Office and Bar Fitters Ltd (see [5]) and Cormack v CBL Cable Contractors Limited (see [21]) the General Commissioners made express findings of acquiescence by the Revenue, as a result of which the Court was able to agree with the Commissioners that the failures were minor and technical.  Here there is no such suggestion; indeed the evidence of actions by Mr Wright shows the opposite.  I have considered whether the failures are “of any significance,” including whether the defaults demonstrate a cavalier attitude of the Appellant to its obligations under the tax legislation; and whether the Appellant is culpable, in the sense that, in the examples given, he would not have been in relation to the bank’s mistake (see [27] of CBL) or the taxpayer’s illness (see [28]), and I have considered the question both qualitatively and quantitively.  In this case there is a failure to pay PAYE on time in every month of the 36 months in the qualifying period (or 34 of those months if one ignores the last two which were 1 and 2 days late).  I calculate that on average the payments are over 18 days late.  I consider that these failures are of significance and that the Appellant is culpable in the sense that it is wholly within its control.  In my view, the failures cannot on any basis be regarded as minor and technical.  
No reason to doubt compliance in future
18.	 Although it is not necessary for me to consider this in view of my decision relating to the past I consider that, particularly in view of the last two months’ compliance, its compliance record on other tax matters, and Mr Sawyer’s new understanding of the importance of paying the PAYE on time, the Appellant is unlikely to be late with complying with his tax obligations in future.  Accordingly I consider that the defaults in the past do not give reason to doubt that the conditions mentioned in s 565(8) will be satisfied.
Failure to exercise discretion
19.	Mr Gotch contends that the Inspector has incorrectly treated some of the contents of IR 40 as statutory rules.  IR 40 concedes correctly that a particular failure may not be enough to justify the refusal of a certificate.  However, if an Inspector wishes to review the reasons for a failure it will always be necessary to ask the taxpayer what those reasons are.  
20.	There is no need for me to pursue this aspect because even if (which I am not deciding was the case) the Inspector did consider himself bound by the policy, I can still substitute my own decision.  I do not consider that the Inspector is bound to ask for reasons for any defaults, but he would have been bound to consider any reasons put forward, but none was, not surprisingly in view of the grant of the previous certificate.
Postscript
21.	Having reached what I consider is the only decision available to me on the legislation, I would like to add that I am concerned about the Revenue having issued the previous certificate in the light of the very similar record of late PAYE payments.  Mrs Parslow said that this was a mistake by the previous Inspector, and Mr Gotch that it could just as easily have been that the previous Inspector considered that the failures were minor and technical.  Without any evidence I cannot decide which of these is right.  But there is no doubt that the Appellant was put into a position of false security by the issue of the previous certificate.  I notice that in Shaw v Vicky Construction Ltd at [15] the Revenue wrote a letter when issuing an earlier certificate pointing to a single late a corporation tax return but saying that they were prepared to issue the certificate as it was a new rule.  The letter then said (in bold type) “But please note that any failure to comply on time over the lifetime of this certificate could put your tax certificate application at risk.”  If such a warning had been given in this case (in which the defaults during the qualifying period for the previous certificate were far greater than in Shaw), I am sure that the Appellant would have complied.  There was no problem about paying on time; it was just that they paid the PAYE with the monthly creditors and thought that the Revenue were content with the delays until the repeated visits from Mr Wright.  It would be outside my jurisdiction to give any effect to this aspect but the Appellant might consider whether this is something that should be referred to the Adjudicator.
22.	Accordingly I must dismiss the appeal.

JOHN F. AVERY JONES

SPECIAL COMMISSIONER
RELEASE DATE: 30 August 2005

SC 3094/05

Authorities referred to in skeletons and not referred to in the decision:
Kirvell v Guy52 TC 445
Phelps v Moore 53 TC 433
Kington v Reilly 54 TC 707
Jones v Lonnen 54 TC 714
Gorge Fabrications v Wilson [1999] STC (SCD) 293 
T & C (Haulage) v Gleig [2000] STC (SCD) 64
R v Sampson ex p. Lansing Bagnall 61 TC 112
British Oxygen Co Ltd v Minister of Technology [1971] AC 610
Williams v Trustees of WW Grundy 18 TC 271
Marson v Morton 59 TC 381
Lupton v FA & AB Ltd 47 TC 580
Ross Marks v McNally [2004] STC (SCD) 503 
J&R O’Kane & Co v IRC 12 TC 303
Woods v Lightpower [2005] All ER (D) 234 (Jun)