HMRC’s conduct was unreasonable

The appeal concerned HMRC’s refusal to direct that the taxpayer was not liable to pay deductions that it considered should have been paid under the construction industry scheme. The issues were whether the taxpayer had taken reasonable care to verify the gross payment status of a subcontractor and whether its view that the subcontractor had gross payment status was due to an error made in good faith.

The taxpayer appealed. 

In its statement of case HMRC alleged fraud on the basis of emails between the directors of the taxpayer although it did not produce these as evidence. It later withdrew from the appeal. The taxpayer applied for costs on the basis that HMRC had acted unreasonably when alleging fraud.

The First-tier Tribunal noted that HMRC admitted that an ‘appropriately qualified and experienced’ caseworker would not have made the allegations of fraud. The judge said however it was no excuse that...