Is this a cautionary tale of an innocent subcontractor hounded by the big bad tax man? Or was its ‘minor and technical’ infraction actually something more?
Glaze & Frame strikes me as a nice outfit. Respectable. Probably it is a typical specialist subcontractor: it has £1.5m turnover, and it employs 20 people. It has bumped up against HM Revenue & Customs. That big outfit has refused to renew the little outfit’s subcontractor’s tax certificate. That’s the jolly system called the CIS thingumajig. And because Glaze & Frame no longer has a CIS card, one of its major customers will no longer place orders with it. Frankly it’s a bit over the top. Or is it?
If you have been hanging around the construction business for an age, you might recall how fretful the Revenue became about people in construction being paid for works on site, pocketing the money and disappearing without paying their tax.
So, in the early 1970s parliament fell hook line and sinker for the idea of introducing the “714 certificates”, as we called them. It was a voucher system, which helped the Revenue trace delinquent labour-only tykes. Anyway, the 714 system gave way to the CIS certificate system of plastic cards and photographs.
Back to Glaze & Frame. When it went to renew its ticket to trade, the Revenue kicked up a fuss. It said Glaze & Frame was frequently late in complying with its PAYE obligations.
The fact is that when remitting its monthly tax and its National Insurance for its employees, Glaze & Frame was invariably late sending the cheque. The Revenue officer calculated that out of 36 monthly cheques, 34 were late by an average of 18 days. Outrageous. Take the culprit to the stocks. The Revenue demanded interest … and got it. But then it went for the throat. When it came to renew its CIS certificate, the Revenue said no.
The matter came before the special commissioner. The Revenue pointed to the rules in the smallprint of the Taxes Act 1988.
This says that the only excuse is when a failure to comply is “minor or technical”.
The context of ‘minor and technical’ is to be understood by looking at the purpose that parliament had when it enacted the tax legislation
You can guess what our typical small subcontractor had to say for itself. It was explained by the firm and its auditors that it had performed its tax obligations over the years. Corporation tax payments were smack up to date, and tax returns and accounts were made in time. The judge accepted that the firm took its tax obligations seriously.
It was also explained that although the due date for PAYE remittance was the 19th of each month, its administration of monthly cheques, like payments to all its creditors rolled out over the following days. Moreover, the CIS renewal exercise on the previous occasion in 2002 was made against precisely the same payment background and nobody raised any queries.
The commissioner had to decide whether the 18-day late payment was “minor and technical”. It so happens that there have been some other cases this year on the same CIS topic, so the phrase has been looked at. The context of “minor and technical” is to be understood by looking at the purpose that parliament had when it enacted the legislation. The exception is framed, said a senior judge, to exclude from the regime payments to subcontractors “where there is no substantial risk of evasion”. I read that remark to mean that the holding of a CIS certificate is evidence of the absence of such risk.
Another senior judge considers that the underlying question is whether or not past defaults (such as late PAYE payments) “were of any significance”. Do the defaults demonstrate a “cavalier attitude” to a firm’s obligations under tax legislation?
The words “minor and technical” can have different meanings. In the Glaze & Frame case, the commissioner said that since 34 out of 36 payments were late and the Revenue had warned the firm to pay on time, there was no excuse. The failures were not “minor and technical” and the Revenue was right to refuse to renew the CIS certificate.
Damn it, the Revenue and the commissioner is right. Whether it is the Treasury or the builders merchant, the due date for payment is just that. If the deal is to pay up by a set date for bricks, glass, straw – keep your promise.
Tony Bingham is a barrister and arbitrator specialising in construction. You can write to him at 3 Paper Buildings, Temple, London EC4 7EY, or email him on firstname.lastname@example.org.