Reasonable Excuse: Poor Cash Flow in Recession

Connaught Contracts were a carpet and flooring contractor registered for gross payment status under the Construction Industry Scheme (C.I.S).
In 2009, the taxman withdrew gross payment status because the compliance test was failed as tax had not been paid by the due date.  Connaught Contracts appealed, claiming it had a reasonable excuse, as the tax had been paid late because of exceptional circumstances.  The business was in dire financial straits caused directly by the recession.  By early 2009, turnover had fallen by 68.65% for January and by 85.22% for February.  The partnership funds were inadequate to meet the tax liability and the wage bill for January, however the outstanding tax was paid as soon as possible. The business had a good record for compliance.  If the business lost its gross payment status many of its customers would not consider it, resulting in the closure of the business and the redundancy of the staff.
The tribunal decided that the appellant had a reasonable excuse. The business’s cash flow difficulties coincided with one of the UK’s worst financial crises and the exceptional circumstances constituted a reasonable excuse.
Connaught Contracts’ appeal was allowed.

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