Failure to appreciate risk of non-compliance

The taxpayer provided a range of trades people from general labourers to crane drivers through contractor companies. It appealed against HMRC’s refusal notices to make a direction under reg 9(5) of the Income Tax (Construction Industry Scheme (CIS)) Regulations 2005 relieving the company of its liability because reg 9(3) (condition A) was not met. This related to the taxpayer’s failure to make deductions from payments made to three subcontractors in accordance with the construction industry scheme. The tax under appeal was about £0.5m.

The directors of the taxpayer said they had taken reasonable care. They relied on an employee to handle CIS matters. She had many years’ experience problems had not arisen before and the company’s accountants was on hand to support her. The only mistake she made was to pay three companies gross when deductions should have been made.

Further the taxpayer was a very small company and...