In Laithwaite v HMRC [2014] UKFTT 0759 (TC), the First Tier Tribunal (FTT) allowed an appeal against CIS penalties for submission of incorrect returns on the basis that the taxpayer had relied on the advice of his accountant.
- Laithwaite was a small jobbing builder with turnover of around £70,000 and net profit of between £17,000 and £25,000.
- He had been operating the Constructing Industry Scheme (CIS) for a number of years.
- When his business expanded he took on a sub-contractor on a labour only basis and on seeking advice from his accountants, was advised by the person responsible for PAYE matters that he needed to register as a contractor for the purposes of the CIS scheme. He registered accordingly and made the appropriate returns.
Mr Laithwaite had several friends in the building industry who were able to supply materials as well as labour which he started to use as additional help. As all the contractors appeared to have tax certificates, and they were supplying materials as well as labour, he believed that CIS did not apply to the payments and that he did not need to make any returns.
- He confirmed that he had received generic details from HMRC, these were ‘voluminous’ and he had not read them in detail but decided to consult his accountants.
- The accountants had not advised that if there were materials involved he still needed to make returns under the scheme.
- Mr Laithwaite’s accountant claimed that he was not instructed to deal with CIS returns; the tribunal did not believe that.
In allowing the taxpayer's appeal against penalties for incorrect returns FTT stated that they were satisfied that Mr Laithwaite genuinely believed that he was operating the scheme correctly as a result of the initial advice given by the accountants. As a result, Mr Laithwaite was entitled to rely on the ongoing advice from the accountants and therefore had a reasonable excuse for his failures.
Comment
This case gives some insight into potential penalty mitigation on the grounds of relying on professional advice.
Practitioners should be careful to ensure that they have clear engagement terms with clients setting out the areas they are advising on and any advice given is recorded in a contemporaneous file note.
Case reference: Laithwaite v HMRC [2014] UKFTT TC03879
