Court of Appeal CIS Regulations Decision

• The Court of Appeal heard an appeal against a decision of Mr Justice Fordham dismissing a claim for judicial review brought by six related entities (‘the taxpayers’). The appeal was in relation to interpretation of the Income Tax (Construction Industry Scheme) Regulations 2005 (“CIS Regulations”)
• This appeal relates to a situation where no deduction, or an insufficient deduction, is made from a payment to a net status subcontractor. Where this occurs, HMRC may make a determination of the amount in question to the contractor under Regulation 13 of the CIS Regulations
• However, where the subcontractor does in fact meet their own tax liabilities, HMRC would receive and retain a greater sum than they would have been entitled to, therefore Regulation 9 recognises this possibility and enables HMRC to issue a direction to the effect that the contractor isn’t required to pay
• The First-tier Tax Tribunal held that there is no power to issue a direction under Regulation 9 if a determination has been already made under Regulation 13. HMRC have modified their position to one which requires as a minimum, that the application of Regulation 9 has been raised by the contractor before a determination is made under Regulation 13
• In this case, the taxpayer’s position is that there is no such requirement. They say Regulation 9 may be put in issue following a determination, which will only become final and therefore unable to be affected by a direction if it is not appealed or, if it is appealed, when the appeal is finally determined
• The Court of Appeal agreed with the taxpayer’s interpretation and stated that HMRC do have power to issue a direction under Regulation 9 in respect of an amount that has been the subject of a determination under Regulation 13. The Court goes on to state that Regulation 13(3) provides a means for a Regulation 9 direction to be reflected in the determination
• The Court of Appeal quashed HMRC’s decision not to consider the taxpayer’s claim under Regulation 9(4) of the CIS Regulations and require HMRC to reconsider the claim

See the full case here.