In David Crossman v HMRC [2016] UKFTT TC04811 the First Tier Tribunal (FTT) denied a claim for reasonable excuse when an accountant failed to notify a bathroom fitter of his obligations under the CIS scheme, but agreed that some payments he made were not within the scheme.
Mr Crossman had been in business as a bathroom fitter for many years:
- He suffered from dyslexia and had difficulty in reading.
- He worked for property owners rather than on building sites or for larger businesses.
- Between 2010 and 2013 he paid other people for work they had done at sites where he was working.
- He used a local accountant to prepare his tax returns, but the firm had not mentioned that he might have obligations under the CIS scheme.
- When HMRC began its investigation into his CIS Scheme activities, he told HMRC that he was unaware of the CIS scheme before 2014 .
During their investigation, HMRC identified a number of payments from which Mr Crossman should have deducted tax, and made a determination for tax of £7,688 and penalties of £7,186. The penalties were assessed under TMA 1970 s98A(2) and FA 2009 Sch 55.
Mr Crossman appealed to the FTT on two grounds:
- That not all of the payments he made fell within the scope of the CIS scheme
- That he had a reasonable excuse for his failure, having placed reliance upon his accountants
On the first ground, the FTT agreed with Mr Crossman in part. The tribunal agreed with HMRC that Mr Crossman was carrying on construction operations in the work he did on bathrooms and he was therefore a contractor, however the tribunal analysed all of the payments identified by HMRC and discounted some as not being made under a contractor-subcontractor relationship. A table summarising these payments and the FTT decision is included below.
On the second ground, the FTT could not agree that Mr Crossman had a reasonable excuse.
- It considered that his reading difficulties might have provided him with a reasonable excuse for getting something wrong, but here it’s not that he did something wrong but that he didn’t know what the law required. Ignorance of the law could be no excuse and therefore no reasonable excuse exists.
- Penalties under FA 2009. Para 23 provides that “where [the contractor] relies on another person to do anything, that is not a reasonable excuse unless [the contractor] took reasonable care to avoid the failure.” The FTT decided that Mr Crossman had relied on his accountant to tell him of his obligations, and as this reliance was not explicitly stated, and could not be implied from their relationship, it was difficult to say that he had taken reasonable care to avoid any failure.
The FTT therefore upheld the determinations and penalties, subject to the parties agreeing revised figures based on the tribunals analysis of payments.
Links
Case reference: David Crossman v HMRC [2016] UKFTT TC04811
For more information about what constitutes construction activities and the obligations of contractors and subcontractors, see our guide CIS: Contractors and Subcontractors
For a review of the CIS penalties under TMA 1970 and FA 2009 see Penalties: CIS (Construction Industries Scheme)
FTT Payments analysis
| Detail | Within CIS? |
| Plumber who undertook jobs which Mr Crossman did not have time for. Quoted directly to the client, and invoiced Mr Crossman. Regularly engaged. Paid round sums in most months in 2011/12 | Yes |
| Carpenter who did some work for one of Mr Crossman’s customers, replacing sash windows and some woodwork for the garage. Agreed scope of work with, and quoted to the customer, invoiced Mr Crossman. Work paid for in October 2011 only. | No |
| Bricklayer who adjusted a pillar on the above customer’s gate. Agreed job and price with the customer, invoiced Mr Crossman. | No |
| Mr Crossman’s brother, a plasterer who did dot and dab work in bathrooms over which Mr Crossman would tile. Invoiced Mr Crossman, paid in June 2011, April and July 2012. | Yes |
| Mr Crossman’s nephew who was taken on as a sort of apprentice undertaking labouring and odd jobs. Worked about 3 hrs per day and was paid on most weeks between April and December 2012. | No – an employee |
| Gas plumber who undertook boiler work on one occasion when Mr Crossman was doing a bathroom. | No |
| Payments made to three businesses which could not be shown not to be subcontractors | Yes |
