Withdrawal of CIS gross payment status was disproportionate

In RMF Construction Services Ltd v HMRC [2021] TC07995, the First Tier Tribunal (FTT) allowed the company’s appeal against the withdrawal of Construction Industry Scheme (CIS) gross payment status eight years after associated compliance failures.

• As part of a CIS Tax Treatment Qualification Test (TTQT) in 2011, HMRC found that RMF had made three compliance failures:
  • Its Corporation Tax return was filed 431 days late.
  • Two Contractor’s Returns were filed late: one by 78 days and the other by 34 days.
• Following correspondence, HMRC sought to withdraw CIS gross payment status owing to the compliance failures but accepted that RMF had a Reasonable excuse for failing to submit contractor’s monthly returns on time.
  • HMRC found a further five compliance failures involving Corporation Tax returns and a P35 return during the period of correspondence.
• Following a review by HMRC, the withdrawal of gross payment status was upheld.
• RMF Appealed to the FTT in December 2012.
  • HMRC requested the appeal be stayed behind JP Whitter (Water Well Engineers) Limited v HMRC [2018] UKSC 31. This delayed the RMF case being heard by eight years.

The FTT allowed RMF’s appeal, finding that the withdrawal of CIS gross status over eight years after the relevant offences would be totally disproportionate:

• Despite the compliance failures in 2011 and 2012, RMF had since met its tax obligations.
• The objective of the compliance regime for CIS is to encourage compliance, not to punish non-compliance.
  • This objective had already been achieved by the threat of withdrawal of gross status, given RMF’s subsequent good record.
• Withdrawing gross payment status would only serve to create administrative work as RMF would be able to reapply for gross status immediately after. This status was likely to be granted.

Useful guides on this topic 

CIS: Contractors and Subcontractors
What is the Construction Industry Scheme? Who does it apply to? How does it work? 

CIS: Construction Industry reverse charge
What is the CIS reverse charge? How do you account for VAT? Can you still cash account for VAT? What administrative changes do I need in order to operate the reverse charge? 

CIS repayments: Top 10 tips
In 2013 HMRC published a list of 'Top 10 tips' for companies who make repayment claims under the Construction Industry Scheme (CIS). The list is no longer available on the HMRC website but still provides a useful checklist.

CIS gross payment cancellation the right decision
In JP Whitter (Water Well Engineers) Limited v HMRC [2018] UKSC 31, the Supreme Court (SC) agreed that HMRC did not have to consider the wider impact on the taxpayer’s business when cancelling its Construction Industry Scheme (CIS) gross payment status.

How to appeal an HMRC decision
What type of decision can you appeal? What are your different options when you disagree with HMRC? What are the key steps in making an appeal?

External link 

RMF Construction Services Ltd v HMRC [2021] TC07995