For contractors/accountants:

As you may be aware, since the new Construction Industry Scheme (CIS) came into force Accountax has been arguing that the new penalty regime is too harsh and open to legal challenge as it is completely out of proportion.  We have seen penalties running into many tens of thousands of pounds, and have successfully defended many clients by including this argument in our client’s defence.  Until recently HMRC has avoided taking any cases to a Tribunal.

However, our doubts over the validity of the scheme have now been confirmed by a recent case heard before the new First-tier Tax Tribunal earlier this month.  Judgment in the case of SKG (London) Ltd v HMRC was handed down on 3 December 2009, in which the Tribunal for the first time analysed the new scheme in light of safeguards in European Law which protect against arbitrary or disproportionate penalties.  The Judges in the case ruled that: “…the Tribunal is left in doubt as to whether or not the statutory provisions for the penalty for late filing of a return…satisfy the requirements of the Human Rights law principle of proportionality”.

As neither side appointed Counsel for the hearing, the Tribunal has not yet had the benefit of detailed legal submissions and has adjourned its final decision until further legal arguments have been considered – this should be sometime between March and July 2010.  HMRC has been quite devious by taking a case where the penalties at stake were a mere £2,800 – whereas under the new scheme in theory the penalties can run to over £70,000.  However, watch this space, as it seems that HMRC could be in for a rough ride and the entire new late filing penalty regime could suddenly be swept away.