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If you’re a subcontractor under the Construction Industry Scheme (CIS) and you receive gross payments from your contractor for the work you do (that means you are paid without having any deductions taken from your payment), you will be subject to a review of your compliance record by HM Revenue & Customs (HMRC).
This will apply whether you are self-employed or run your subcontractor business as a company.
HMRC do this once a year by running something called a ‘Scheduled Review’, also known as an ‘Ongoing TTQT’ (Tax Treatment Qualification Test). This is an automated check on whether you have complied with all your tax obligations as a taxpayer including, if appropriate, as an employer/contractor.
This guide will help you to understand why you will be subject to a Scheduled Review, what will happen when you do come under Review and what you can do if you disagree with HMRC's decision.
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When HMRC review your payment status they will check whether you (and any partners where you are a partnership) have, or your company has, complied with your obligations as a taxpayer or employer/contractor in the 12 months leading up to the Review.
This means that, during that period, you, your company and any partners in your partnership must have done all the following:
When considering whether your compliance history is satisfactory during the 12-month period of the review, HMRC will ignore any, or all, of the following failures:
You will fail the Scheduled Review if any of the following happens during the 12-month review period.
HMRC have received:
Or, at the date of the Review, you have still outstanding an overdue:
If you run your business as a company (rather than being self-employed) HMRC look at the compliance history of the company itself, rather than individual directors or beneficial shareholders within the company.
If you fail the Review, your gross-payment status may be withdrawn (that means you will no longer be eligible to receive your payments in full without a deduction taken off).
First of all, HMRC will write and tell you that you are about to fail the Review. They will set out the reasons for this and will give you a chance to explain why you may not agree. For example, if you believe you have a reasonable excuse for the particular defaults that will cause you to fail the Review you should tell HMRC at this stage. HMRC will consider what you say and then make a decision.
If HMRC accept your explanation, you will not have your gross payment status withdrawn and this will be confirmed in writing. However, if you do not reply to HMRC’s initial letter or HMRC do not accept your explanation for the default, they will write, withdrawing your gross payment status in 90 days' time and setting out what obligations you have failed to meet. This is to allow you to appeal, if you consider that the decision is incorrect, or to make the necessary adjustments to your business in preparation for the switch from being paid gross to being paid under deduction.
You have the right of appeal against HMRC's decision to take away your gross payment status, if you believe that the facts are incorrect or that there is some reasonable excuse why you have failed to meet one or more of the listed obligation failures. You should send your appeal, in writing, within 30 days from receipt of the letter from HMRC.
If you are a sole-trader, or your business operates as a partnership, you should send your appeal to:
HM Revenue and Customs
If your business is a limited company, you should send your appeal to:
HM Revenue and Customs
CT CIS Centre
You will keep your gross payment status for as long as it takes to resolve the appeal. Only you will know that there is any question as to your entitlement to gross status. Any contractor verifying your business during the appeal process will simply be told to pay you gross.
If, following a Scheduled Review of your compliance history, HMRC cancel your gross payment registration, you cannot reapply until one year from the date that the cancellation of your gross payment status takes effect.
If you appealed over the original decision and the appeal was eventually decided against you, perhaps by the tribunal, you will not be able to reapply until one year after the date your gross payment status was cancelled following the conclusion of the appeal.