P M Reinforcements (NW) Ltd v Revenue and Customs (INCOME TAX/CORPORATION TAX : Sub-contractors in the construction industry)

INCOME TAX � penalties � construction industry scheme � monthly returns � whether returns late � whether special circumstances � whether penalties disproportionate � appeal allowed in part

This is an appeal against assessments to penalties notified to the Appellant for the late submission of returns under the Construction Industry Scheme (�CIS�). The penalties were assessed pursuant to Schedule 55 Finance Act 2009 and total �7,680.

The CIS regime and associated penalties for non-compliance were considered in detail by the Upper Tribunal in Commissioners for HM Revenue & Customs v Bosher [2013] UKUT 579 (TCC) . For present purposes we adopt from that decision the following description of the regime including abbreviations:

�In order to remedy this abuse, Parliament enacted legislation, which goes back to the early 1970s, 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. The amount so deducted and paid over is, in due course, allowed as a credit against the sub contractor�s liability to the Revenue.�

The legal basis of the CIS, as it has been in force from 6 April 2007, is ss 57-77 of the Finance Act 2004 (�FA 2004�) and the Income Tax (Construction Industry Scheme) Regulations 2005 (SI 2005/2045) (the �2005 Regulations�). As Ferris J said, the CIS requires certain payments by contractors to sub-contractors to be made subject to deduction of tax, but the sub-contractors are entitled to claim credit for tax withheld under CIS against their tax liability for the tax year in question.