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The First Tier Tribunal recently ruled that a construction industry subcontractor had a reasonable excuse for the compliance failures that resulted in the loss of his gross status for Construction Industry Scheme (CIS) purposes.

The compliance failures in question were the late payment (by about three months) of a self assessment payment on account of £3,286.50, and the late submission of a monthly CIS return. The excuses, which the judge accepted as reasonable, were an inability to make the payment on account without prejudicing business cash flow and the stress suffered by reason of health and other personal problems in the nature of family illnesses.

However, perhaps more significantly, the judge considered that the likely consequences of a loss of gross status in this case - a loss of livelihood and a severe economic loss on the sale or scrappage of equipment - would be wholly disproportionate for the late payment of tax, for which HMRC would in any case presumably be compensated in interest. The judge stated that this in itself could well constitute a reasonable excuse.

However, it should be noted that in an earlier case on the same issue, the First Tier Tribunal stated that it could not consider proportionality, as this argument "cannot be considered to be a reasonable excuse". 

Advisers should nevertheless note the judge’s comments in the most recent case when considering appeals against loss of gross status, especially where this has resulted from relatively minor compliance failures.

Please contact Alison Hawkes to discuss this case or any other CIS matter.