This was a trial of a preliminary issue. The issue was whether the contract for supply of building workers to London Recruitment Services was a contract with one subcontractor (Euro Pay Limited) which held a Construction Industry Scheme Tax Certificate or whether Euro Pay was itself contracting as agent for numerous employing companies, none of which held certificates.

LRS conducted an agency business acting as an intermediary between construction companies who periodically wanted to engage workers who were not their own full time employees, and companies referred to as composite companies which employed such workers.

In the course of performing its role as an agency company, LRS hired labour for a number of composite companies. From November or December 2003 one of its main sources of labour among the composite companies was Euro Pay. Euro Pay obtained its first CIS Certificate on 24 December 2003. After this date, LRS discharged invoices rendered against it by Euro Pay gross i.e. without deducting tax in respect of the labour content. This continued until November or December 2004 when Her Majesty’s Revenue and Customs cancelled Euro Pay’s certificate. As a result of this cancellation, Euro Pay ceased trading and went into liquidation.

HMRC claimed that LRS should have deducted tax from all payments made to Euro Pay following the issue to Euro Pay of its CIS Certificate and up until Euro Pay ceased trading because Euro Pay was acting only as a nominee for other employing companies, none of which held CIS Certificates. Accordingly LRS was liable for the tax that it should have deducted notwithstanding that it had already paid 100% of the gross invoice amounts to Euro Pay.

Had LRS contracted with Euro Pay as a principal or had Euro Pay been a nominee for other employing companies?