Construction Industry Scheme

Under the current Construction Industry Scheme (CIS) a subcontractor can be paid gross if a gross payment certificate has been obtained This must then be renewed on a regular basis. The Revenue is starting to deny renewal where PAYE and NI payments are in arrears as the summary of two recent cases below shows.

Arnold (Inspector of Taxes) v G-Con Ltd

The company had operated within the construction industry for more than three years and had been granted a construction industry scheme (CIS) certificate. However, when the certificate was due for renewal an Inspector determined that the company had failed to comply with its obligations to account for PAYE and national insurance contributions and that, accordingly, the CIS certificate should not be renewed.

The General Commissioners upheld the taxpayer’s appeal, holding that the company’s admitted failures to comply with its obligations had been ‘minor and technical’ and it was expected that the company would comply with such obligations in the future. The Inland Revenue appealed, alleging that the decision of the Commissioners was one which no reasonable body of Commissioners could have reached or that the Commissioners had taken irrelevant matters into account.

The courts held that in this case it was clear that the breach of the conditions had involved significant amounts of money and periods of delay and that there was no basis for the Commissioners’ conclusion that the failure had been ‘minor and technical’. It followed that the Commissioners had erred in so finding and, accordingly, their decision would be set aside and the Inspector’s decision restored.

The appeal was allowed.

Barnes (Inspector of Taxes) v Hilton Main Construction Ltd

The company was a building company incorporated in May 2001. In January 2003, it was issued with a gross payment certificate by the Inland Revenue but in January 2004, they refused to renew the certificate on the grounds that it had not complied with its obligations in respect of corporation tax and PAYE.

In April 2004, the company successfully appealed to the General Commissioners. The Commissioners found that if the certificate was refused the company would have to close and that such a decision would be disproportionate and inequitable in the circumstances. The Inland Revenue appealed, contending that the Commissioners had erred in law.

The judge found that, in the circumstances of the case, the conclusion of the Commissioners was legally flawed. The Commissioners applied a test of proportionality that was not the test the relevant legislation allowed them to apply. The certificate granted by the Commissioners would be quashed.

The appeal would be allowed.