Updated: Jul 5, 2020
HMRC felt that the work amounted to a substantial re-development of the property and that the landlord was a contractor’ engaged in a ‘construction contract’ within the meaning of the CIS and as such required to file CIS returns.
Partial conversion of single property
The landlord acquired its property on 27 July 2007 and let the property to two commercial tenants (Northwood Leisure under a lease which expired on 8th August 2014 and Iceland Foods under a lease which is due to expire in 2023).
Northwood Leisure occupied the upper two storeys and on lease expiry the landlord decided to convert the existing snooker hall and offices to residential with a mix of nine two and three bedroomed flats. The ground floor remained (and still does) as a convenience store.
On 9 February 2015, the Landlord entered into a contract with ARJ Construction Limited (ARJ) to redevelop the first and second floor space vacated by Northwood Leisure. Practical completion occurred on 27 April 2016. The Landlord sold long leases for the completed residential flats in 2016/2017 and receives ground rents on top of the existing rents from Iceland Foods.
HMRC felt work was substantial and activities fell within CIS
The landlord did not consider it necessary to register the partnership for the Construction Industry Scheme (CIS) as it did not consider itself to be ‘a developer’; its primary activity being property investment.
HM Revenue & Customs disagreed with this view and on 26 April 2016 advised the landlord to register for the CIS scheme which it did on 13 June 2016. Since ARJ was entitled to receive its payments gross the landlord went on to submit backdated nil returns for the period between March 2015 and April 2016. HMRC issued a penalty notice of £3,700 for the late returns.
Landlord wins appeal and penalties for no nil returns rejected
In allowing the appeal, tribunal confirmed that the penalties of £3,700 had not been raised correctly and failed to take account of the £3,000 capping provisions introduced in 2011 or removal of the obligation on contractors to make nil returns from 6 April 2015.