Distribution of printed products, CIS gross payment status, European VAT reclaim scheme

Last week we had a VAT-CIS sandwich, starting with a change in HMRC’s view of the VAT treatment of services connected to the delivery of printed products. The CIS meat in the sandwich examines excuses which can be used to overturn HMRC’s decision to withdraw gross payment status. Finally the deadline for reclaiming VAT under the European VAT reclaim scheme is fast approaching.

CIS gross payment status
The cancellation of gross payment status for a contractor in the construction industry scheme (CIS) can put that contractor out of business. If there is a good chance of overturning HMRC’s decision it may be worth fighting the case through the Courts.
In our newsletter on 24 March 2011 we outlined three arguments which have been used successfully to restore the contractor’s gross payment status.

Proof of the notice given
HMRC did not inform the contractor in a timely manner that his gross payment status had been withdrawn (Ithell v HMRC). HMRC are not good at keeping copies of the form CIS308 which provides this information, so it can’t prove when the notice was sent.  

Reasonable excuse
The taxpayer didn’t understand how to arrange a time to pay schedule and instead sent post-dated cheques to HMRC. This was counted as a compliance failure, but the tribunal viewed it as a reasonable excuse (A Wood v HMRC). If HMRC has misallocated funds, you may be able to argue that the late payment was not the fault of the taxpayer. Other reasonable excuses for late payment or late filing can cancel out the compliance failures. 

Disproportionate effect on business
Some tribunal judges have accepted that the consequences that flow from the withdrawal of gross payment status operate as a reasonable excuse for the taxpayer. This was successfully argued in S Morris Groundwork v HMRC, and in T Bruns v HMRC which was quoted in that case. However, both of those cases were heard at the First-tier Tribunal, which means they don’t form a binding precedent that other cases should follow.
The Upper Tribunal has now heard a case using this argument (JS Whitter v HMRC), which does form a binding precedent, unless it is overturned at a higher court. 

The company convinced the First-tier Tribunal that the loss of gross payment status would have a detrimental effect on its business and put at risk 25 jobs, and HMRC should have taken this into account when removing its gross payment status. The Upper Tribunal ruled that HMRC don’t have to consider the financial effect on the business, so the company’s gross payment status was cancelled. 

This means several minor compliance failures, such as late payment of PAYE by a few days, can lead to withdrawal of gross payment status. CIS contractors should be aware they need to aim for a perfect tax compliance record, or their business could be at risk. 

This is an
extract from our tax tips newsletter dated 10 September 2015
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The newsletter contained links to related source material for this story and the
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