Since the modern CIS scheme was introduced in 2007, HMRC have tried to pull property investor into the CIS reporting system where they refurbish buildings. If monthly CIS returns are not submitted on time, automatic penalties apply.
This makes no sense where a property investor engages a building firm to carry out the building work required. The building firm should be the lead contractor for CIS, not the customer who owns the building. If the building work amounts to more than £1 million, then the building owner may be deemed to be a CIS contractor under FA 2004, s 59 (1).
Thornton Heath LLP regarded itself as a property investor rather than a property developer. It engaged a building company (ARJ Construction Ltd) to convert the upper floors of one of its commercial buildings into residential flats. ARJ Construction was registered as a CIS contractor to receive income gross.
The tribunal referred to the lead case: Mundial Invest SA Ltd V Moore (Inspector of Taxes) 2005 and decided that Thornton Heath LLP was not a CIS contractor and all the late filing penalties it had received were not due.
Written by the Tax Advice Network