Revenue and Customs v Facilities and Maintenance Engineering Ltd.

The Construction Industry Scheme certificate conditions are prescriptive. A subcontractor must have complied with its PAYE and NIC obligations during the three-year qualifying period. A failure is excused only where it is both minor and technical and gives no reason to doubt future compliance. Persistent and substantial lateness cannot be cured by subsequent improvement, satisfactory compliance with other tax obligations, commercial hardship or the absence of a warning from the Revenue. The Commissioners’ review jurisdiction permits them to reconsider whether the statutory conditions are met, but gives them no general discretion to issue a certificate contrary to those conditions.

FAME, a construction-industry subcontractor, held a certificate permitting it to receive payments gross from main contractors. The Revenue refused to renew the certificate because FAME had paid PAYE and NICs late during 32 of 34 months in the relevant three-year period. The General Commissioners allowed FAME’s appeal, finding that the failures were minor and technical and that future compliance could be expected.

The Revenue appealed to the High Court. The central issues were whether the failures could properly be characterised as minor and technical, and whether the Commissioners could allow the appeal because FAME had reorganised its systems and was expected to comply in future.

1. Appeal allowed. FAME’s failures were late payments in 32 of 34 months, with delays ranging from 13 to 58 days and averaging about 26 days. On the undisputed facts, the only possible conclusion was that the failures were more than minor and technical. FAME therefore failed the past compliance condition in s.565(3) of the Income and Corporation Taxes Act 1988.
2. The exception in s.565(4) is conjunctive. The company must show both that the past failure was minor and technical and that it gives no reason to doubt future compliance. The Commissioners were entitled to find that the second condition was satisfied because FAME had reorganised its systems. That finding could not assist FAME because the first condition was not met.
3. The statutory scheme leaves no general discretion to the Revenue, the Commissioners or the court. A company whose failures are more than minor and technical cannot obtain a certificate merely because future compliance is expected, the consequences are commercially severe, or the company complies with other tax obligations.
4. Under s.561(9), the Commissioners may review afresh whether the statutory conditions are satisfied, but their jurisdiction remains confined by the statutory scheme. It does not permit them to issue a certificate contrary to s.565.
5. The absence of a warning from the Revenue was irrelevant to whether the failures were minor and technical. The approach in Shaw v Vicky Construction Ltd and Arnold v G-Con Ltd was followed. Satisfactory compliance with other tax obligations could not convert serious PAYE and NIC defaults into minor and technical failures.
6. Cormack v CBL Cable Contractors Ltd and Templeton v Transform Shop Office and Bar Fitters Ltd were distinguishable because those cases involved arrangements accepted by the Revenue for late payment. No such arrangement existed here.

The judgment records that the General Commissioners allowed FAME’s appeal against refusal of a renewed certificate. The Revenue appealed to the High Court.

• High Court (Chancery Division): The Revenue’s appeal was allowed and the Commissioners’ decision was reversed.