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Case Studies

Case study of a building firm refused a renewal Subcontractor Exemption Certificate in the Construction Industry.

The regulations concerning Contractors and Subcontractors operating in the industry have progressively been tightened and are now very stringent.

To be issued with a certificate enabling payment for work done to be made gross (i.e. without tax being deducted) is reliant upon, amongst other things, having a faultless compliance record, i.e. to have paid all taxes and met all obligations on time.

As with all businesses, the Inland Revenue is one creditor amongst many and this involves a constant juggling act to keep all creditors, suppliers and the taxman happy.

The managing director was completely up front and honest about these things and had developed a very good working relationship with his local tax office.

As he had spare money, he would call into the tax office and they would allocate it against the most pressing debt. This arrangement had worked well for years and he had not even incurred any form of penalty charge over all this time. At the time his exemption certificate was coming up for renewal, the Inland Revenue underwent another of its regular reorganisation, and he found himself being responsible to a new tax office some distance away.

The new tax office, on receiving his renewal application for an exemption certificate, immediately refused it on the basis of the past compliance record, which showed arrears of tax at one time or other, over the period.

The builder’s situation was made more difficult by the existence of a similar case which ended up at the High Court, where the judge had upheld the Inspector of Taxes decision not to renew the certificate in view of the compliance record. Not surprisingly, the Revenue was using this case as a reason for doing exactly the same thing.

The tragedy was that the builder had just secured a contract with a very large multinational company, which would transform his company and lead to the employment of many more staff. The company was in any event, well known locally for its charitable work.

Despite all pleadings, the Revenue set its face against the builder and continued to refuse the renewal of the certificate. Eventually, the matter was listed for hearing before the General Commissioners – an independent tribunal made up of local business people.

At this stage, Malcolm Preece was called in to help. At first sight, the builder’s plight seemed hopeless. Indeed, the payment record of his company was worse than that in the decided court case which the Revenue were going to use against him.

Malcolm luckily had inspiration the night before the tribunal hearing and although there was still a mountain to climb, he felt at least that he had an argument to put before the Commissioners.

In the court case, the builder had been warned of his poor compliance record by the Revenue, and the problem had persisted.

In our case, the builder had never sought to shirk his responsibilities but had remained in contact with his local office throughout. He had NEVER been warned of his conduct and had never had a penalty or any sanction awarded against him.

There was absolutely no reason to believe that he would not live up to his responsibilities – he had never shirked them. Moreover, the Revenue’s heavy-handed approach would put the firm out of business, losing a great many existing jobs whilst denying the prospect of the firm’s expansion.

The local charitable work would also be lost to the community. The venom with which the General Commission cross-examined the Revenue team made it clear from an early stage that they were going to find for the builder appellant and this they duly did.

Even then, Malcolm had to pressurise the Revenue into issuing the renewal certificate.

Happily the builder has his certificate, his lucrative contracts and the business is expanding.

Malcolm says that he takes more pleasure out of this victory than any other recent one. He has kept an honest, hard working man in business and enabled him to prosper against all the odds.

Should you require further information, please contact us on 01384 217222.

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