Error made in good faith did not amount to reasonable care

The taxpayers which were connected companies engaged subcontractors to carry out the construction works. Based on previous understanding of the construction industry scheme they made payments to the subcontractor without any deduction of tax on the basis that gross payment status applied.

After a review HMRC told the taxpayers they should be deducting tax from the payments to the subcontractors (FA 2004 s 61) and they should register for the construction industry scheme. After taking advice the taxpayers registered for the scheme.

In 2017 HMRC issued determinations under reg 13 of the Income Tax (Construction Industry Scheme) Regulations 2005. This was on the basis the taxpayers had failed to take reasonable care.

The taxpayers appealed saying they had taken reasonable care to comply with the law and the failure to deduct was due to an error made in good faith. They had also claimed...