A TRIBUNAL CASE that ruled that cash flow problems did count as a "reasonable excuse" for late payment of tax signals a trend towards business-friendly rulings, a leading law firm has said.
Tribunal judge John Walters QC found in favour of Alan Kincaid, who appealed against an HM Revenue & Customs decision to remove the gross payment status of his A K Construction company.
Under the Construction Industry Scheme, companies can receive gross payments from contractors without paying the 20% automatic levy charged if they do not have gross payment status. HMRC said that Kincaid had been more than a year late with some payments, which meant that he failed to meet the compliance test required to retain the status.
The commissioner's position was that cash flow problems did not count as a reasonable excuse, however, Walters ruled that "no authority was given for this proposition". Kincaid's cash flow problems were caused by an earlier decision to withdraw his gross payment status, which was overturned but meant that the company had been paying too much in tax.
As Kincaid appealed the decision, Walters said: "The appellant had done all that he could to avoid this problem" and added that this did constitute a reasonable excuse.
Heather Self, a director at McGrigors, said there is "a trend developing in tribunals taking a commercial approach to what is a reasonable excuse".
"We have had the reasonable excuse defence in VAT cases for a long time but it is quite new in direct tax. We are starting to see judges ask what a reasonable excuse is," she said.
This trend resulted from "people sitting in first-tier tribunals who have commercial experience", she added.
A HMRC spokeswoman said: "As a general proposition HMRC does not accept that a cash flow problem in itself constitutes 'reasonable excuse' or that this particular case sets a precedent. HMRC's position remains that there must be an exceptional and unforeseen event for cash flow difficulties to constitute 'reasonable excuse'."
You may also like
If budgeting is to have any value at all, it needs a radical overhaul. In today's dynamic marketplace, budgeting can no longer serve as a company's only management system; it must integrate with and support dedicated strategy management systems, process improvement systems, and the like. In this paper, Professor Peter Horvath and Dr Ralf Sauter present what's wrong with the current approach to budgeting and how to fix it.
In this white paper CCH provide checklists to help accountants and finance professionals both in practice and in business examine these issues and make plans. Also includes a case study of a large commercial organisation working through the first year of mandatory iXBRL filing.