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Upper Tier Tribunal finds First Tier Tribunal erred in finding withdrawal of gross payment status was ‘disproportionate’

23rd Mar 2022
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As a highly-respected sub-contractor and intermediary in the contractual chain, The Guild...
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HMRC wins appeal

The Upper Tier Tribunal (UTT) has allowed HMRC’s appeal against the decision issued by the First Tier Tribunal (FTT) in RMF Construction Services Ltd v HMRC [2021] TC07995, which had found that withdrawing the company’s gross payment status some eight years after the offence, when it had been compliant for at least the last four to five years, was disproportionate.

Overview of gross payment status

Gross payment status allows a subcontractor within the construction industry scheme (CIS) to be paid gross by a contractor without deduction of CIS tax. The legislation under FA2004 s66 permits HMRC to withdraw gross payment status where a subcontractor has not complied with certain prescribed tax and National Insurance contributions obligations.

Once removed, the subcontractor cannot re-apply for gross payment status for a period of one year after the cancellation taking effect.

Summary of the RMF First Tier Tribunal case

Following certain tax compliance failures, HMRC revoked RMF’s gross payment status. Subsequently, the company appealed, and the case was held over to await the outcome of J P Whitter (Waterwell Engineers) Ltd v HMRC. In the Whitter case, the company was appealing the withdrawal of its gross payment status on the grounds that HMRC had not considered the financial impact this would have on the business.  This case finally reached the Supreme Court in May 2018 with the judgement given on 13 June 2018 dismissing Whitter’s appeal.

Following the Whitter decision, HMRC confirmed the withdrawal of RMF’s gross status. Whilst RMF accepted that the outcome of the Tax Treatment Qualifying Test review in 2012 was technically correct, it did not accept that that the withdrawal, some eight years later, was appropriate. Furthermore, if it were to apply for gross status now it would meet the current requirements and gross status would be granted. 

The FTT allowed RMF’s appeal and agreed that revoking its gross payment status was disproportionate in relation to the failure that occurred eight years ago and would serve no purpose.  In addition, it found that the company would be able to reapply for gross payment status immediately, which, in line with the normal rules, would be granted.

HMRC’s grounds of appeal

HMRC’s appealed to the UTT on three grounds –

  • Ground 1: The FTT misunderstood the limits of its jurisdiction and the nature of its review function
  • Ground 2: The FTT misapplied the proportionality test
  • Ground 3: The FTT relied on impermissible factors when determining that the withdrawal of gross payment status was disproportionate

RMF’s position supported the decision of the FTT which had allowed its appeal against the withdrawal of its gross payment status, contending that it would be totally unfair to lose its gross status so long after the event and after implementing changes to improve its systems and comply with the legislation.

The decision

The UTT allowed HMRC’s appeal, concluding that the basis of their case on Ground 1 was sufficient to allow the appeal. That being said, the UTT also commented briefly on the remaining two Grounds finding in favour of HMRC in both.

Under Ground 1 of the appeal, HMRC contended that the focus of any appeal that challenged the power to make a determination to cancel a person’s gross payment registration under s66(1) FA 2004 must consider whether that determination had been correctly reached.  Furthermore, there was nothing within that provision to indicate that the FTT has the power to consider any subsequent changes in circumstance that arise following the making of the determination. 

The UTT found that the FTT had answered the wrong question when deciding the appeal - the relevant question being whether HMRC’s decision was justified at the time it was made and not the question the FTT considered, which was whether the withdrawal of gross payment status eight years after the initial decision was disproportionate.  Whilst it was unfortunate that there had been a long delay before the appeal was heard, it was not relevant to the question that had to be determined by the FTT.

Furthermore, the UTT agreed with HMRC’s contentions that the legislation was intended to operate in such a way that all persons are effectively treated in the same way where their gross payment status has rightly been revoked by HMRC, regardless of whether they do or do not choose to appeal. If a person who appealed the removal of their gross status were able to take into account issues that had taken place after the withdrawal decision had been made, for the purposes of their appeal, this would give them a significant advantage over a person in similar circumstances who had chosen not to appeal.

Under Ground 2 of the appeal, the UTT agreed with HMRC’s contentions that the FTT did not appear to consider the relevant sections in Whitter which made it clear that the whole CIS compliance regime easily satisfies the proportionality test, and it would only be in the most exceptional circumstances where it would be necessary to reconsider a proportionality review on an individual decision. It found that there was nothing exceptional in RMF’s position to justify the exercise of discretion in its favour and the mere passage of time also does not make a case exceptional.

In addition, even though a person may become compliant after a withdrawal determination has been issued, this does not create an exceptional reason as to why s66(8) FA 2004 should not apply.  S66(8) provides that when gross payment status is cancelled, a person cannot re-apply for a year after the cancellation takes effect. Therefore, it was found that the FTT also erred in stating that RMF would be able to reapply for gross payment status immediately, and that this would be granted. 

Under Ground 3 of the appeal, the UTT agreed with HMRC’s contentions that the FTT had made an error of law by taking into account the risk of commercial failure of RMF and the additional administrative work caused by a withdrawal of gross status. As confirmed in Whitter, matters extraneous to the CIS are not to be considered by HMRC when exercising its discretion to withdraw gross payment status.


It will only be in the most exceptional cases that HMRC may look to consider whether or not to exercise its discretion to withdraw gross payment status. The financial impact on a business of losing gross status or the fact that a business may later become tax compliant will not, in most instances, fall within this criterion.

There are obvious advantages to holding gross payment status both from a cashflow perspective and commercial standing with current and prospective new clients.

Staying tax compliant remains key to retaining gross payment status.

If you would like to raise anything we’ve discussed in this article, please contact us at [email protected] and talk to our expert team. We’re here to help.

How can The Guild help?

The Guild has in-house ex-HMRC Employer Compliance and CIS experts who can help you with an HMRC enquiry, whether at the outset of the review or at a point where HMRC demands are escalating.


The content of this article is for guidance only and shall not constitute advice. Please seek independent advice or contact The Guild for information about its services.

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