CIS: Contractor left with £1.7m tax billby
North Point failed to deduct tax under the CIS from sub-contractors, as it was not described as a ‘contractor’ in those contracts. The director did not take reasonable care when signing those contracts.
HMRC issued determinations totalling £1,723,025 to North Point (Pall Mall) Ltd and China Town Development Company ltd (China Town) in respect of tax which should have been deducted by the two companies under the Construction Industry Scheme (CIS) in 2015/16 and 2016/17. Those companies – jointly referred to as North Point – appealed (TC8205)
The first-tier tribunal dismissed the appeals of North Point on the grounds that:
- The director, Mr Griffiths, had not taken reasonable care, albeit that the tribunal accepted that the error had been made in good faith, and
- Neither HMRC nor the tribunal were able to grant relief under Regulation 9 Income Tax (Construction Industry Scheme) Regulations 2005 once determinations under Regulation 13 had been raised.
Griffiths had relied on advice from Mr Choules, the director of Inca Management Ltd (engaged by North Point to provide employers agent services to it), who had a number of years’ experience working within the construction sector and large-scale project management.
North Point had engaged four different sub-contractor companies using standard joint contract tribunal (JCT) contracts, which were subject to some agreed amendments. The contracts, included a clause relating to the CIS and under that clause, the engager could be identified as being a contractor for the purposes of the CIS or not.
These contracts were pre-populated by Choules.
Choules, believing that as North Point was a developer and/or employer it was not a contractor for the purposes of the CIS and as such the contracts did not identify North Point as being a contractor. Griffiths signed the contracts without giving the matter much further thought, relying on the advice of Choules. It is on this basis that Griffiths believed he had taken reasonable care.
However, both Griffiths (who is also a qualified accountant and who had a considerable amount of experience dealing with the CIS on his clients’ behalf) and Choules gave evidence that they were not tax experts.
Tribunal was not impressed
The tribunal commented that “the reasonable director, with Mr Griffiths’ experience of the CIS, and thus cognisant of the dangers of getting it wrong, would have, at a minimum, read the pre-populated contracts, spotted the reference to the CIS… and have tested the interpretation…, with Mr Choules.”
The tribunal further stated: “It would have been equally clear to Mr Griffiths with his experience of the CIS that both appellants were carrying out construction operations within the ambit of section 74 FA 2003.”
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Anil has over 35 years of experience assisting clients with employment tax and Construction Industry Scheme matters having worked as an employer compliance officer within HMRC, a manager within KPMG and an associate director within Grant Thornton. Anil now operates an independent consultancy, EmphaCIS Tax Consultancy Ltd, supporting clients of...