The Court of Appeal upheld the decision of a tax inspector to refuse to renew a tax certificate in respect of subcontractors in the construction industry on the ground that the failure by the taxpayer company to comply with the conditions imposed on the grant of the original certificate could not be regarded as merely ‘minor and technical’ under ICTA 1988, s. 565(4). The appeal court held that, contrary to the decision of the High Court in Cormack (HMIT) v CBL Cable Contractors Ltd [2006] BTC 253, it was wrong to take account of the taxpayer's prompt payment of other taxes or the likelihood of future compliance when considering whether delays were minor and technical.

Facts

The taxpayer company had operated within the construction industry for over three years and had been granted a construction industry scheme ('CIS') certificate under s. 561 of ICTA 1988. When the certificate was due for renewal, the tax inspector found that the taxpayer had been in breach of the conditions laid down in s. 565(3), in that it had failed to comply with its obligations to account for PAYE and National Insurance contributions (NICs). There was also some doubt whether it would be able to comply with its statutory obligations in the future. Therefore the inspector refused to renew the CIS certificate. The taxpayer appealed to the general commissioners who found, inter alia, that the taxpayer's admitted failures to comply with its obligations had been ‘minor and technical’ within s. 565(4), and that the taxpayer could be expected to comply with its obligations in the future pursuant to s. 565(8). The Revenue appealed to the High Court by way of case stated.

Mann J allowed the Revenue's appeal, pointing out that the question for the court was not whether the failure by the taxpayer to comply with its obligations under the Tax Acts had been serious, but whether it had been ‘minor and technical’. Assessing whether a breach of conditions was ‘minor and technical’ under s. 565(4) was a matter of impression. It was clear from the evidence that the taxpayer had never made payments on time. Significant sums had become due and were always paid late. Moreover default payments which could not be regarded as ‘minor and technical’ would not be rendered ‘minor and technical’ just because other taxes, such as PAYE and NICs, had been paid promptly. The pattern of payment of those other taxes did not demonstrate an improving position. In the present case, it was clear that the breach of the conditions in s. 565(3) had involved significant amounts of money and significant periods of delay, and that there was no basis for the commissioners’ conclusion that the failure had been ‘minor and technical’. The commissioners had erred in so finding and so their decision should be set aside and the inspector's decision restored.

The taxpayer appealed to the Court of Appeal.

Issue

Whether the commissioners had reached a decision to which no reasonable body of commissioners could have come or had taken account of irrelevant matters in reaching their decision.

Decision

Sir Peter Gibson (Hughes and Jonathan Parker L JJ agreeing) (dismissing the appeal) said that the meaning of the relevant statutory provisions was entirely clear. The two conditions in s. 565(4) were completely separate. The judge had correctly identified the nature of his jurisdiction and had proceeded to exercise it properly. He was plainly right to reject the notion that the whole tax compliance record of the taxpayer fell to be taken into account when considering whether the taxpayer's failures were minor and technical. The only reasonable conclusion on the figures was that the failures relied upon were other than minor and technical.

The CIS certificate was a prize which subcontractors were anxious to obtain but the Revenue required strict compliance with all the subcontractor's tax obligations before a certificate would be issued. The absence of any specific warning by the Revenue of the consequences of failure to comply was irrelevant as was the fact that a certificate had previously been renewed in circumstances where it might have been refused. The degree of culpability might be relevant in considering whether failures were minor and technical in a particular case but each case would depend on its own facts. It was not helpful to compare and contrast the facts of one case with those of another.

Furthermore, Laddie J had erred in principle in the earlier case of Cormack (HMIT) v CBL Contractors Ltd in conflating the two conditions and taking account of the taxpayer's future tax compliance when considering whether the taxpayer's past failures were minor and technical. The first condition in s. 565(4) looked to the past and required a judgment by the Revenue, and by the commissioners if there was an appeal, whether the taxpayer's failures were minor and technical. The second condition looked to the future and the first condition was not to be construed in such a way as to pre-empt the second. There was no justification for doing so.

Court of Appeal (Civil Division). Judgment delivered 12 May 2006.