Birley Estate Ltd v Revenue and Customs (INCOME TAX/CORPORATION TAX : Penalty)

Factual and Procedural Background

The appeal concerns a late filing penalty of £100 imposed on the Appellant, a contractor operating within the Construction Industry Scheme (CIS), for the tax month ended 5 August 2016. The Appellant was required to file the CIS return by 19 August 2016 but submitted it on 19 September 2016, resulting in the penalty. The penalty notice was issued on 31 August 2016, with a 30-day deadline to appeal. The Appellant’s initial appeal to HMRC on 6 February 2017 was rejected as out of time. Subsequently, on 22 March 2017, the Appellant applied to the Tribunal for a late appeal, which was admitted due to a reasonable excuse related to a misunderstanding following a telephone call with HMRC.

The Appellant’s CIS registration process began on 6 August 2016, after the subcontractor started on 5 August 2016. PAYE registration was completed on 18 August 2016 following an activation code issued on 9 August 2016. CIS registration was finalized on 31 August 2016 after receiving an activation code on 19 August 2016. The first return to be filed was for the period ending 5 August 2016, which was submitted late on 19 September 2016. There was no dispute that the return was required or that it was late.

Legal Issues Presented

1. Whether the delay in the registration process for CIS constituted a reasonable excuse for the late filing of the CIS return.
2. Whether the late appeal should be admitted despite being filed after the statutory deadline.

Arguments of the Parties

Appellant's Arguments

• The Appellant engaged a labour-only subcontractor and recognized the need to register for CIS but did not realize that PAYE registration was also required simultaneously.
• PAYE registration was completed on 18 August 2016 after receiving the activation letter.
• The Appellant had to wait for CIS registration, which was only completed on 31 August 2016.
• By the time CIS registration was complete, the deadline to submit the return for 5 August 2016 had passed.
• The Appellant verified the subcontractor, filed the monthly return, and paid the due tax as soon as registration was completed.
• The appeal is based on the fact that the setup of the online scheme took several weeks, leaving no means to submit the return on time.
• In the appeal to HMRC, ill health was cited as a reasonable excuse, specifically a pinched nerve causing severe pain preventing use of a computer, which lasted until 12 December 2016.

Respondent's Arguments (HMRC)

• The Appellant should have registered for CIS before the subcontractor started on 5 August 2016.
• As a CIS contractor, the Appellant is responsible for compliance with regulations, including timely filing under section 98A(2) of the Taxes Management Act 1979.
• The grounds of appeal do not demonstrate any exceptional circumstances preventing timely return submission.
• A contractor is legally obliged to file returns by the 19th of the month.
• Although sympathetic to the Appellant’s illness, HMRC contended it did not amount to a reasonable excuse because the illness was ongoing, and arrangements should have been made to file on time.
• HMRC found no special circumstances to justify reducing the penalty below the statutory minimum.

Table of Precedents Cited

Court's Reasoning and Analysis

The Tribunal first considered whether the Appellant had a reasonable excuse for the late filing of the CIS return. The central issue was the delay in registration rather than the routine act of filing the return. The court distinguished between a one-off registration procedure and a recurrent filing obligation.

The Tribunal found that the Appellant began the registration process promptly on 6 August 2016, the day after the subcontractor started. The PAYE activation code was generated within three days, and registration completed on 18 August 2016. The CIS activation code was generated the next day, with registration completed on 31 August 2016. The delays were consistent with normal postal and administrative times, with no undue delay attributable to HMRC or the Appellant.

The Tribunal acknowledged the Appellant’s ill health but determined that while ongoing illness does not excuse late filing of returns, it could reasonably contribute to short-term delay in a one-off registration process.

The Tribunal reasoned that it was not unreasonable for the Appellant to start registration after the subcontractor’s actual start date, given the nature of subcontractor engagements which may be confirmed shortly before work begins. The fact that the subcontractor started on the last day of the return period further supported the reasonableness of the timing.

Applying the test from Clean Car Company Ltd, the Tribunal concluded that the Appellant acted as a responsible taxpayer would under the circumstances, intending to comply with tax obligations and acting reasonably given the situation.

Accordingly, the Tribunal found a reasonable excuse for the late filing and allowed the appeal.

Holding and Implications

The Tribunal allowed the appeal and cancelled the £100 penalty for the late CIS return for the period ended 5 August 2016.

The direct effect is that the Appellant is relieved from the penalty charge. No new legal precedent was established beyond the application of existing principles on reasonable excuse and registration timing in the CIS context.