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My client is a subcontractor and currently holds a CIS6 certificate. His application for his certificate to be renewed has been formally refused by the local tax office. It would appear from the letter enclosing the formal refusal letter that this has been dealt with at a fairly low level within the Revenue.
My client is a subcontractor and currently holds a CIS6 certificate. His application for his certificate to be renewed has been formally refused by the local tax office. It would appear from the letter enclosing the formal refusal letter that this has been dealt with at a fairly low level within the Revenue.
The grounds for the refusal are that my client has failed the compliance test. In the three years under review, he has divorced his wife but she has continued to undertake his book-keeping and basic accounting. His tax returns have been submitted on time, but he has not paid his tax liabilities on time and has been issued with a surcharge notice for both 1999-2000 and 2000-01.
My client has expressed doubts at being able to continue if he had to suffer the 18 per cent tax deduction from 1 August due to the cash flow implications of not having a valid certificate.
Have any readers been successful in appealing against a decision in such circumstances?
(Query T16,015) - Old John.
The Inland Revenue will only approve an application for the renewal of a CIS6 certificate if the subcontractor has complied with certain conditions. These conditions are set out in section 562, Taxes Act 1988 and the Revenue may refuse the application if any condition has not been satisfied.
I refer 'Old John' to section 562(8), Taxes Act 1988 which states that 'The applicant must, subject to subsection (10), have complied with all obligations imposed on him by or under the Tax Acts or the Management Act in respect of periods ending within the qualifying period and with all requests to supply to an Inspector accounts of or other information about any business of his in respect of periods so ending'. Under section 562(10), Taxes Act 1988 'An applicant or company that has failed to comply with such an obligation or request as is referred to in subsection (8) shall nevertheless be treated as satisfying that condition as regards that obligation or request if the Board are of the opinion that the failure is minor and technical and does not give reason to doubt that the conditions mentioned in subsection (13) will be satisfied'. Section 562(13), Taxes Act 1988 states that 'There must be reason to expect that the applicant will, in respect of periods ending after the end of the qualifying period, comply with such obligations as are referred to in subsections (8) to (12) and with such requests as are referred to in subsection (8)'. It should be noted that any National Insurance due is to be paid on time in accordance with section 562(12), Taxes Act 1988.
The qualifying period is the period of three years ending with the date of the application and throughout this period 'Old John's' client has submitted his tax returns on time, but has failed to pay his tax liabilities on time and incurred surcharges. Under sections 59A and 59B, Taxes Management Act 1970, a taxpayer is obliged to pay any tax due by the due date and, because 'Old John's' client has failed to comply with this obligation, he has failed to satisfy section 562(8), Taxes Act 1988 resulting in the Revenue's refusal to approve his renewal application.
An appeal using section 562(10) as a basis may prove to be difficult as the failures must be considered by the Board as minor and technical and there must be a reason to expect that there will be compliance in the future. The unsuccessful cases of Kirvell v Guy [1979] STC 312 and T & C Hill Haulage v Gleig [2000] STC (SCD) 64 do not provide much hope for a successful appeal for 'Old John's' client. - Beacon.
We have won a CIS6 refusal appeal in less favourable circumstances than those outlined by 'Old John', although in an unorthodox fashion. Our client's 'failures' included late returns and payments over a number of years, but the General Commissioners upheld the appeal. Why? Because, as with 'Old John's' case, the application was dealt with at a junior level and the officer had not properly followed the statutory procedure. In fact, following the appeal, the Inland Revenue has thanked us for bringing the error (which apparently affected all CIS6 applications) to its attention, and has agreed to reimburse our client's costs.
Before considering the client's compliance, 'Old John' should scrutinise the legislation carefully to make sure the Inland Revenue has complied with its obligations. However, notwithstanding fortuitous technical lapses, there may well be merit in 'Old John's' case. It is clear that there are failures, and the question is, therefore, whether the failures are 'minor and technical' in the eyes of the Inland Revenue, which is a decision the Commissioners are able to review on appeal. Do not regard the contents of leaflet IR40(CIS) Construction industry: Conditions for getting a subcontractor's tax certificate as being 'rules'. Although the leaflet suggests that two late surcharges means no certificate, this is only Inland Revenue interpretation and guidance. It does not supplant the law and the Commissioners may not take well to being told how to exercise their own discretion by the Revenue. Each application should be judged on its full merits, taking into account any extenuating circumstances (the divorce proceedings perhaps?) and the overall compliance record. It is not a checklist exercise.
Other useful resources are the Board's 1975 Statement of Policy on certificate renewal and British Oxygen & Co Ltd v Board of Trade [1971] AC 610 regarding the necessity of flexibility in guidelines. - Accountax.
