Supreme Court denies appeal against cancellation of gross status registration
18 June 2018
18 June 2018
In the case of JP Whitter (Water Well Engineers) Limited (“JPW”) v HM Revenue and Customs (‘HMRC’), the Supreme Court denied JPW’s final attempt to challenge the cancellation of their gross payment status under the Construction Industry Scheme (“CIS”), concluding that the company failed to comply with the requirements of the CIS without reasonable excuse.
Background
JPW is a family-run business of water well engineers, which began operating in 1972 with gross payment status being granted 1984. JPW was reviewed regularly to determine whether it ought to retain its registration certificate. It first failed a review in July 2009, when its registration was cancelled and in June 2010, HMRC revoked JPW’s gross payment status again. On both occasions, the registration was reinstated by HMRC following an appeal.
Between August 2010 and March 2011, JPW was late in making PAYE payments on seven occasions, with one payment being at least 118 days late. JPW, at this time, had an estimated 25 employees and an annual turnover of about £4.4m.
On 30 May 2011, HMRC, acting under section 66(1) of the Finance Act 2004 (“the Act”), cancelled the company’s registration for gross payment.
In 2012, JPW appealed to the First-Tier Tribunal (“FTT”) which accepted the company’s evidence that major customers would be likely to withdraw work if it lost its gross payment status resulting in the loss of around 60% of the company’s turnover and the dismissal of about 80% of its staff with recovery expected to take around ten years. The FTT described section 66 of the Act as giving a “general unfettered discretion” to take account of the impact on a business if gross payment status were to be cancelled.
The decision was not upheld by the Upper Tribunal (“UT”) in 2015, nor was it upheld by the Court of Appeal (“CoA”) in 2016. Under section 67(5) of the Act, cancellation does not take effect until the final determination of the appeal (i.e. following the Supreme Court’s decision).
Both the UT and the CoA concluded that Parliament had no intention within the CIS legislation to give HMRC the power, or the duty, to take into account matters extraneous to the CIS regime when deciding whether or not to exercise the power cancellation.
Supreme Court weighs in
The statutory requirements for registration of gross status are contained within the Act and are highly prescriptive. They include the requirement for applicants of gross status to have complied, within the previous twelve months, all tax obligations under the Tax Acts and the Taxes Management Act 1970.
JPW made two arguments;
The Supreme Court holds that the CoA was correct. They found that HMRC were not provided with discretion over whether to cancel registration or not, stating that;
“The mere fact that the cancellation power is not itself mandatory is unsurprising. Some element of flexibility may be desirable in any enforcement regime to allow for cases where the failure is limited and temporary (even if not within the prescribed classes) and poses no practical threat to the objectives of the scheme.”
The Supreme Court’s decision also dismissed JPW claim that HMRC had breached A1/P1, which entitles a person to “the peaceful enjoyment of his possessions”.
Read the full case here.
Aspire Comment
The case of JP Whitter (Water Well Engineers) Limited is a powerful reminder of the need for continued compliance by contractors operating in the CIS, especially when the potential removal of gross payment status can either lead to the continued success or the inevitable failing of a business.
If you would like advice regarding your operation of CIS, or would like to apply for gross status, please get in touch with Aspire to discuss how we can help.