In Thornton Health LLP v HMRC [2018] TC06831 a company pursuaded the tribunal that it was not liable to register as a contractor under the Construction Industry Scheme: it was a property investor and although it redeveloped one floor of a building that was not enough to say that it had not changed its business to include construction operations. HMRC also calculated penalties incorrectly.

  • The company was a property landlord with a mixed use residential and commercial property.
  • It redeveloped the middle floor of one of its properties to it change it to residential and appointed a third party construction company, as the main contractor.
  • HMRC considered this was a substantial development to change the building to a new use and that it was a contractor’ engaged in a ‘Construction contract’ within the meaning of the Construction Industry Scheme (CIS) ss 57 & 59 FA 2004 and as such required to file CIS returns.
  • The company filed nil returns, as its contractor was paid gross and it was fined penalties of £3,700 for late filing under Schedule 55 Finance Act 2009
  • The company appealed against the penalties

The FTT found:

  • The Appellant had only re-developed one floor of the building. That was not enough to change its business to a contractor.
  • It did not itself act as a contractor: the contract between the Appellant and its contractor was therefore not a ‘construction contract’.
  • Accordingly the Appellant was not obliged make monthly returns under CIS.

In allowing the appeal the FTT confirmed that:

  • Penalties of £3,700 were not correctly charged.
  • If they had been properly imposed, they were in any case incorrectly calculated by HMRC and did not take into account the capping provisions introduced in November 2011, under which the penalties would have been capped at £3,000 in total. 

Useful tax guides

Construction Industry Scheme (CIS)
Who is a contractor and subcontractor, who needs to register, a closer look at property developers.

External links

Thornton Health LLP v HMRC [2018] TC06831

 

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