HMRC ‘untouchable’ over any CIS errors

Contractors will be denied redress from HM Revenue & Customs’ mistakes under the new CIS scheme following a High Court judgment that makes the government “untouchable”.

In last week’s case of Neil Martin Ltd -vs- Inland Revenue (IR), Judge Andrew Simmonds ruled that despite errors by the IR the courts did not have the power to intervene. The IR had failed to get a CIS card to the contractor, resulting in a 56-day delay and financial losses of £500,000 for the company – which eventually folded.

The IR escaped action after Judge Simmonds accepted that, had there been a legal duty, he would have found the Revenue to be in breach of it and liable to pay damages. “In effect Mr Martin won on the facts, but lost on the law,” he added.

Martin told CJ: “The Revenue is now seen as the untouchables and I fear for companies when the new CIS scheme comes on board as there are bound to be mistakes in getting a new system to work properly.

“We passed the test of a duty of care on the three points of proximity, foreseeability and negligence.

“However, still no duty of care could be found, even though the department itself uses those words in its documentation [Duty of Care & Putting Things Right] to contractors.

“When mistakes are made the law invariably allows someone who has been injured, or who has lost money, to go to court to argue his/her case on the merits. Almost no area is immune, save now the Revenue.

“Even where the tax authorities make a real mistake, deny it and fail to compensate, the law now appears to be that the Revenue owes no duty of care in negligence and any remedy is therefore denied.”

Martin has been granted permission to appeal the case through the Court of Appeal and possibly the House of Lords and the European Courts of Justice.

However, he needs support as his efforts are being hampered by the threat of bankruptcy caused, ironically, by a further 76-day delay in the Revenue getting him a CIS card in 2003.

The mistakes helped force Martin out of business and resulted in an unpaid tax bill of £80,000. With interest the figure now stands at £225,000. So far only £55 in compensation has been offered.

In a statement HMRC said: “HMRC welcomes the High Court’s judgment. It confirms HMRC’s understanding of the scope and extent of its duty of care to applicants under the Construction Industry Scheme. We constantly aim to resolve any complaints at the first point of contact, but when this does not prove possible the customer can approach HMRC’s adjudicator.”

n If you want to know more about the implications of the new CIS on your business and how to cope with the potential pitfalls, Contract Journal is holding a one-day conference on the topic.

Making new CIS work for you – and coping with the problems it could cause, will be held on 6 December at the Heritage Motor Centre, Warwickshire. For more details, contact linda.lucas@rbi.co.uk, or telephone 020 8652 3822.

[Contract Journal, 4 October 2006, p 1]