Tribunal case – Reasonable excuse for late payment of tax
The First Tier Tribunal has allowed an insufficiency of funds due to the economic climate to justify a reasonable excuse for the late payment of tax. Whilst this does not set a precedent it may be helpful when arguing similar cases with HMRC.
In this case a company that operated a roofing business was appealing against the withdrawal of Gross Payments Status under the Construction Industry Scheme (CIS).
One of the key conditions that must be satisfied for Gross Payment Status to be granted and retained is that the sub-contractor pays all of their taxes on time.
HMRC contended that the company in question should have been denied Gross Payments Status as a significant number of tax payments had been made late. The taxpayer, whilst admitting failures in complying with the conditions of the scheme, felt that they had a ‘reasonable excuse’ for so-doing.
The roofing business clearly suffered from the downturn in construction since early 2007 and its business shrank dramatically. In addition bank funding became unavailable. The resulting late payments to HMRC were due to significant cash flow difficulties. The Tribunal decision clearly states that “A reduction in trading volume of 75% coupled with an almost overnight change in the banking environment could hardly be described as other than exceptional”.
The Tribunal stated that its decision in this case does not provide a ‘blanket’ excuse for all businesses affected by the economic downturn. However, it accepted that the roofing industry in particular had been critically affected by the state of the economy and therefore the taxpayer had a ‘reasonable excuse’ for late payment. The appeal was allowed.