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Court of Appeal allows appeal on interpretation of CIS regulation

Beech Developments (Manchester) Ltd & Ors v HMRC: EWCA Civ 486

This case involved an appeal against a decision dismissing a claim for a judicial review brought by six related companies, collectively referred to as ‘Beech’, relating to the interpretation of the Construction Industry Scheme (CIS) regulation.

The companies in question, who were in the same group, had failed to operate CIS correctly, resulting in HMRC assessing and issuing Regulation 13 determinations for the under-deducted CIS tax initially totalling over £5.4m, which was revised to just under £2.5m (excluding interest).

The point at stake was whether Beech’s interpretation of the CIS regulations allowed a direction under Regulation 9 (which relieves the contractor of the CIS liability under-deducted) in respect of an amount that has been included in a reg. 13 determination (formal demand for underpaid CIS tax).   HMRC’s view has always been that once a reg. 13 determination has been raised, a direction under reg. 9 cannot be considered.

Under reg. 9(3) Condition A HMRC may relieve a contractor of the CIS tax due where an officer is satisfied that the contractor took reasonable care to comply with the scheme and that the failure to make a deduction arose from an error made in good faith or because the contractor held a genuine belief that the scheme did not apply. Relief may be provided under reg. 9(4) Condition B where HMRC are satisfied that the subcontractor, from whom the contractor failed to make the deduction, was not liable to pay tax on the payment or has returned the income on their tax return, and, in turn, have submitted that return to HMRC and paid their tax liability. Whilst a contractor can appeal against a refusal to grant relief under reg. 9(3) there is no right of appeal against a refusal to grant relief under reg. 9(4).

In this case Beech had requested relief under both reg. 9(3) Condition A and later under reg. 9(4) Condition B, however both requests were made after HMRC had already raised reg. 13 determinations. Beech’s requests for relief were denied by HMRC.

The Court of Appeal analysed in depth the legislation in question and found in favour of Beech’s interpretation, meaning that a direction under reg. 9 can be issued even after a reg. 13 determination has been raised, providing that determination has not been finalised. The appeal was allowed.

Moving forward, this outcome could be considered very important, as greater protection should now be available to contractors to raise the question with HMRC as to whether relief is available rather than the current practice which has prevented this issue from being raised once HMRC have raised formal determinations. It is probably safe to assume that this practice has resulted in some instances with a contractor paying CIS liabilities where relief under reg. 9 may have been available. Hopefully this issue should be addressed going forward.

How The Guild can help

The Guild has a strong background in CIS compliance and has in-house ex-HMRC CIS and Employer Compliance experts who can help you with any problems you may be having with complying with your CIS obligations.

If you would like to raise anything we’ve discussed in this article, please contact us at and talk to our expert team. We’re here to help.

GuildHUB is an information resource, provided free of charge by The Guild, for accounting professionals and their clients.  If you wish to contact The Guild, please email

The content of this article is for guidance only and shall not constitute advice. Please seek independent advice or contact GuildHUB for information about its services.


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