Evancast (Kent) Limited v The Commissioners for HMRC
[2024] UKFTT 1045 (TC)
Access Contracting Services Ltd v The Commissioners for HMRC
6 November 2023
[2023] UKFTT 973 (TC)
First-tier Tribunal
A small company didn't deduct enough tax from its subcontractors because it relied too much on one employee. Even though the employee was the main problem, the company was also at fault for not having enough checks in place to prevent mistakes. The company lost its appeal against the tax penalties, though a minor correction was made to the penalty calculation.
Key Facts
- •Access Contracting Services Ltd (ACS) appealed HMRC's refusal to relieve them of CIS liability and penalty assessments totaling £446,777 and £97,173.88 respectively.
- •The appeal concerned ACS's failure to deduct tax from payments to subcontractors under the Construction Industry Scheme (CIS).
- •ACS employed Annette Chivrall, who handled CIS compliance, and engaged Riddingtons Ltd for general accounting advice.
- •ACS made gross payments to three subcontractors (Smart Tax UK Ltd, Ultimate Payroll Ltd, and United Contract Services Ltd) despite them not having gross payment status.
- •HMRC conducted a compliance check, leading to the appeal.
- •Ms. Chivrall was no longer with the company and unavailable to testify.
- •The key issue was whether ACS took reasonable care to comply with CIS regulations.
Legal Principles
Reasonable care under Regulation 9(3) Condition A of the Income Tax (Construction Industry Scheme) Regulations 2005.
Income Tax (Construction Industry Scheme) Regulations 2005, Regulation 9(3) Condition A
The test for reasonableness considers what a reasonable taxpayer, exercising reasonable diligence, would have done in the circumstances.
Anderson (deceased) v HMRC [2009] TC 00206
The test of reasonableness is a question of degree, considering all circumstances, including those specific to the taxpayer. There is no universal rule.
Barrett v HMRC [2015] TC 04514
Outcomes
Appeal dismissed.
ACS did not take reasonable care to comply with CIS regulations. While they relied on Ms. Chivrall's expertise, they lacked sufficient checks and balances, especially given the significant financial risk involved and the potential inducement influencing her subcontractor choices. The absence of written procedures, director oversight, and verification of CIS status checks demonstrated insufficient care.
HMRC's penalty calculation was largely upheld.
The Tribunal found that special circumstances did not warrant a penalty reduction. However, it disagreed with HMRC's reasoning for not granting the maximum reduction under 'telling, helping and giving', concluding that the Appellant's cooperation with HMRC did not justify the partial reduction.
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