[2010] UKFTT 415 (TC)

TC00685

Appeal number TC/2010/00053

Construction Industry Scheme – penalties for late filing of return required by paragraph 4 of the Income Tax (Construction Industry Scheme) Regulations 2005 taxpayer registered for filing on line therefore no prompt by HMRC – whether a reasonable excuse under s.118(2) TMA 1970 - no

FIRST-TIER TRIBUNAL

TAX 

	CENTURY BUILDERS LTD	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

TRIBUNAL: 	Mr Michael S Connell (Judge)

The Tribunal determined the appeal on 12 April 2010 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 26 November 2009 and HMRC’s statement of case submitted on 01 February 2010.

© CROWN COPYRIGHT 2010

DECISION

1.	This is an appeal against the decision of HM Revenue & Customs (HMRC) to impose penalties for the late submission of a monthly Construction Industry Scheme (CIS) return for the month ended 05 April 2009 on Century Builders Limited (the Appellant).

2.	The Appellant company has been trading within the CIS and employing contractors since 05 August 2007.

3.	Paragraph 4 of the Income Tax (Construction Industry Scheme) Regulations 2005 provides for the making of monthly returns.  Regulation 4(1)(a) provides that the return must be made to HMRC in an approved form not later than 14 days after the end of every tax month by a contractor making contract payments or payments which would be contract payment but for s.60 (4) Finance Act 2004 (payments to payees who are registered for gross payments).  The return must therefore be made by 19th of the tax month (the filing date) in which the return period ended.  A return period runs from the 6th of one month to the 5th of the next.  If a return is received after the filing date it is treated as being late.

4.	If a contractor who has made a return (or should have made a return) under Regulation 4 makes no payments under construction contracts in the tax month following that return, a contractor must still make a ‘nil’ return not later than 14 days after the end of the tax month, unless the contractor has notified HMRC that the contractor will make no further payments under construction contracts within the following 6 months.

5.	If a return is not received by HMRC by the filing date the contractor will be liable to a late return penalty for that period and any subsequent month or part of a month the return is not filed.  Penalties are charged for each outstanding month at £100.00 per month per return pursuant to s.98 A(2) Taxes Management Act 1970.

6.	The CIS return for the period ended 05 April 2009 was not filed until 04 July 2009.  The return should have been filed on 19 April 2009.  Accordingly, penalties were levied of £100.00 per month for April, May and June 2009 – a total of £300.00.

7.	The Appellant appealed the imposition of the penalty.  The Appellant did not dispute that the returns were due and were made late.  His grounds for the appeal were that, whilst he understands why the late penalties were imposed, he does not agree with them.  He says he objects to penalties being imposed for each month a return remains late, especially since he had made his payments on time.  The Appellant also says it is possible to forget to file returns electronically, especially when quiet and that it may have been preferable for him to have filed returns manually.

8.	According to HMRC’s records, the Appellant’s filing preference for CIS returns is by internet.  Mr Sharp of the Appellant company appears to have misunderstood the implications of registering online and filing over the internet.  He appears to have failed to appreciate that the Appellant company would no longer receive forms or any other prompt from HMRC in regard to the making of returns.  It seems he had not realised that he would have to take the initiative in filing online without further prompting.

9.	HMRC’s website contains links to a ‘CIS online’ page.  There is clear guidance on the website with regard to the advantages of verifying and filing online.  It is stated that it is necessary for a contractor to make monthly CIS returns within 14 days of the end of the tax month which they are reporting on, even if there are no sub-contractor payments to report.  It is also stated that, if the return is late, there will be an automatic penalty of at least £100.00.

10.	There was accordingly no dispute that the returns were due and were made late.  The only issue before me was whether there was a reasonable excuse for the default.

11.	S.118(2) of the Taxes Management Act 1970, so far as is material to this appeal, provides as follows :

‘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 ceased’

12.	HMRC say in their statement of case that Mr Sharp, on behalf of the Appellant company, had previously appealed penalties imposed for the late submission of CIS returns for the periods ended 05 July 2008 and 05 September 2008 on the grounds that he was new to filing CIS returns online.  HMRC on those occasions allowed the appeal and issued him with a letter advising him of his obligations as a contractor within the CIS.  A copy of the letter from HMRC dated 18 February 2009 is included within the appeal papers.

13.	HMRC accordingly contend that Mr Sharp is aware of the requirement to file monthly CIS returns and that it was Mr Sharp’s responsibility to ensure that he observed the CIS Regulations and fulfilled his tax obligations.

14.	Mr Sharp failed to heed HMRC’s published advice and information (both documented online) of the need to make monthly CIS returns, including ‘nil’ returns where appropriate, and consequently any excuse based solely on ignorance of the CIS system does not constitute a ‘reasonable excuse’ under s.118(2).  Mr Sharp’s appeal on behalf of the Appellant company does not contain anything which shows that something exceptional prevented Mr Sharp from operating the CIS correctly and submitting the appropriate return on time.

15.	For the above reasons, I decided that Mr Sharp had shown no reasonable excuse throughout the period of default, dismissed the appeal and confirmed the penalty determination.
	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:  23 August 2010