Tribunal Rules CIS Penalties Excessive
The First-Tier Tribunal has held that the statutory penalties charged for late filed Construction Industry Scheme Returns may be struck out as being (in human rights terms) disproportionate to the State’s legitimate objective of securing the payment of taxes, or may be reduced as being excessive.
Shortly put, under the statutory CIS scheme, a contractor is required to submit monthly Returns of payments to subcontractors. The Case, Anthony Bosher v HMRC (2012) UKFTT 631 (TC), concerned penalties charged for Return periods before October 2011. In outline, if a Return for such a period was not submitted on time, a fixed penalty of £100 was charged, with further £100 penalties if the Return was more than a month late, more than two months late, and so on up to twelve months.
If the CIS Return was more than 12 months late, an additional ’month 13’ penalty was charged. The statutory maximum was £3,000, but in practice HMRC charged between £300 and £3,000 depending on how many times, in a rolling twelve-month period, a Return was submitted more than twelve months late.
Such penalties can of course quickly add up, and in Mr Bosher’s case, a total of £54,100 was charged for eighteen late monthly Returns – £19,300 of this was made up of fixed £100 monthly penalties and £34,800 of ‘month 13’ penalties. The Revenue had offered to reduce this total to £14,600, the amount which would have been chargeable under the new system of late filing penalties which came into force in October 2011 (see page 148 of our June 2010 edition and page 67 of our December 2010 edition).
However, the Tribunal (Judge Aleksander and Ms Hewett) held that the monthly penalties were disproportionate, and so should be reduced to nil, and that the ‘month 13’ penalties were excessive and should each be reduced to an amount equal to the CIS tax shown on the Return or, if greater, £100 (making a total penalty charge of £6,287).
An interesting feature of the case is that Mr Bosher represented himself at the Tribunal and, in essence, simply claimed that ‘the fines are unjust’. The Tribunal then based their decision on their own analysis of the law, though HMRC were represented by Counsel.
Finally, it seems to us that if the fixed penalties were disproportionate under the pre-October 2011 regime, they must still be disproportionate now. The tax-geared penalties (charged on Returns more than six months late) probably are proportionate, though the statutory minimum penalty should probably be capped at an amount equal to the tax shown on the Return.
HMRC’s response to the decision is awaited.