Composite company Gabem loses appeal against the Revenue

The Court of Appeal yesterday refused Gabem Management’s request for an injunction concerning its CIS status.

The company has been contesting HM Revenue & Customs’ (HMRC) refusal to renew its CIS5 card, which expired at the end of June this year.

Gabem is now operating with CIS4 status only. This means it cannot be paid gross, and reduces the tax savings it is able to offer to those using its services, potentially making them less attractive.

Gabem is continuing to provide information to HMRC pending a further hearing, with the Special Commissioners, due to be held in early October.

As announced in the Budget earlier this year, the government is intending to come down hard on composite companies as it believes they can be exploited as a means of tax avoidance by workers falsely claiming to be self-employed. The Gabem decision is likely to lead to further cases by the Revenue against similar companies.

Managing director Trudy Gordon said that the appeal verdict was disappointing. She added: "Gabem does not operate in a vacuum – any decision about our situation ultimately carries implications for the whole of the industry."

Gabem had asked for an injunction for relief while legal remedy was sought, arguing that HMRC had given insufficient notice of its intention to withdraw the company’s CIS5 status. This had left them with very little time in which to update their IT systems and for their clients to make necessary changes to payment systems. However, at a half-day hearing at the Court of Appeal on Tuesday 18 July, Lord Justice Moses declined to grant any injunction.

Without a CIS5 card, Gabem cannot be paid gross by clients, who will have to make the necessary deductions from payments themselves. In addition to affecting Gabem’s cash flow, the decision creates extra administration for clients.

Gordon said: "Gabem will continue to operate normally. The change is unfortunate but not critical. There will be a short-term alteration to our cash flow, but Gabem is a successful business and we can manage this."

She regretted that clients would now have to change their own payment systems to make deductions themselves, but stressed that "this does not affect the way that payments to operatives are calculated, and they will be paid in the normal way".

Gabem operates as a ‘composite company’, administering single-person limited companies for more than 11,500 individual workers, most of them in construction.