Withdrawal of CIS gross payment status
25 June 2018
The Supreme Court has dismissed an appeal regarding HMRC failing to take account of the impact on the company’s business when revoking its registration of Construction Industry Scheme (CIS) gross payment status.
This appeal concerns the legislation which governs the CIS, which was introduced in order to counter widespread tax evasion by sub-contractors in the construction industry. It requires certain contractors to deduct and pay over to HMRC a proportion of all payments made to the sub-contractor in respect of labour under a sub-contract. The amount deducted and paid over is, in due course, allowed as a credit against the subcontractor's liability to HMRC.
However, sub-contractors with statutory certificates of gross payment registration are exempt from those requirements. That tends to make any sub-contractor holding a certificate a more attractive party for a contractor to deal with. It also improves the subcontractor’s cash flow by enabling the sub-contractor to receive the contract price without deduction.
This appeal raised a short question on the operation by HMRC of the CIS under the Finance Act 2004. The appellant company was registered for gross payment under the scheme. As is now accepted, it failed to comply with the requirements of the scheme without reasonable excuse. In consequence, on 30 May 2011, HMRC exercised their power under the Act to revoke its registration. In doing so, they took no account of the likely effect of their action on the company’s business.
The company contended that this represented a failure to take account of a material consideration, in breach of both domestic public law, and of the European Convention on Human Rights.
Background
The appellant company, a family-run business of water well engineers, registered for gross payment under the CIS around 1984. It then underwent regular reviews to determine whether it ought to retain its registration certificate. It first failed a review in July 2009, when its registration was cancelled. The same occurred in June 2010. On both occasions, the registration was reinstated by HMRC following an appeal.
Between August 2010 and March 2011 the company was late in making PAYE payments on seven occasions. The delays were generally of a few days but on one occasion of at least 118 days. It is accepted that the company failed to comply with the requirements of the CIS without reasonable excuse. At that time the company had about 25 employees and an annual turnover of about £4.4m, much of it derived from contracts with a small number of major customers. A further review followed. On 30 May 2011 HMRC, acting under section 66(1) of the Finance Act 2004, cancelled the company’s registration. In doing so, HMRC took no account of the consequences for the company’s business.
The company appealed to the First-tier Tribunal (FTT) which accepted the evidence that the cancellation, once it took effect, would have had a seriously detrimental impact on the company. The FTT allowed the company’s appeal, holding that HMRC had been wrong not to take account of the likely impact on the company’s business. However, that decision was overturned by the Upper Tribunal with which the Court of Appeal agreed. The company then appealed to the Supreme Court.
Judgement
The Supreme Court unanimously dismissed the appeal. In short, saying that the statute does not in itself require the consideration of the impact on the individual taxpayer when revoking a company’s registration of CIS gross payment status
You can read the full judgment of the Court here (the only authoritative document).
| Helping contractors and sub-contractors understand their responsibilities, the CIPP offers a half-day
Construction Industry Scheme training course. Helping you learn how to register under CIS with HMRC, what your responsibilities are to HMRC as well as learn about verification and how to make the correct CIS deductions from payments. For more information on upcoming dates and locations, visit our website here or call on 0121 712 1044. |