Payments to Isle of Man parent company were liable to deductions

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The appellant UK company (ICM), a wholly-owned subsidiary of an Isle of Man company (Island), was registered for gross payment under the construction industry scheme (CIS). 

Contractors were made payments to ICM without deductions, due to ICM’s gross payment status. ICM paid the money received from the contractors to Island, also without deduction of tax. Island then made payments to construction workers without making any deductions for CIS purposes.

HM Revenue and Customs (HMRC) issued notices of determinations for the tax years 2002/03 to 2008/09, and for the period May 2009 to February 2010. In addition, HMRC withdrew ICM’s gross payment certificate for failing to make deductions. ICM’s appeal to the First-tier Tribunal (FTT) ([2013] UKFTT 207 (TC)) was dismissed. ICM appealed.

The Upper Tribunal (UT) considered the contractual documents and arrangements between the parties. The UT upheld the FTT’s finding that the relationship between ICM and the contractors in the relevant chain was that of contractor and subcontractor for CIS purposes. The UT also upheld the FTT’s finding that the nature of the contract between Island and construction workers was not one of contractor and subcontractor, but one whereby Island acted as agent for the construction worker in concluding contracts between him as subcontractor and another entity as contractor.

In addition, the UT held that the FTT was right to analyse the payments made by ICM to Island as contract payments made by ICM as contractor to a nominee of the construction worker as subcontractor for the purposes of FA 2004, s 60. The FTT’s decision that ICM was obliged to make deductions (pursuant to s 61) when making payments to Island was upheld. The UT also agreed with the FTT that ICM did not have a reasonable excuse (within FA 2004, Sch 11, para 12(3)) for failing to make the deductions. ICM’s appeal was dismissed.

Island Contract Management (UK) Ltd v Revenue & Customs [2015] UKUT 472 (TCC)

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