CISR44080 - Register and maintain subcontractor: turnover test: penalties for false figures

| CISR44600 | Action guide contents | |—————————————————————————————————–|———————–|

A subcontractor entity (sole trader, partnership or Limited Company) must provide certain information when applying to be registered for

• payment under deduction or

• gross payment.S72 FA2004 provides for a penalty not exceeding £3,000 if

• a false statement is made or

• a false document is furnishedfor the purposes of becoming registered for payment under deduction or gross payment, and

• it is false in a material particular
• and the subcontractor
• knew it to be false or,

• made or furnished it recklessly.Registration for Gross Payment

  Where a subcontractor is registered for gross payment you may discover that a false statement has been made or a false document furnished when considering whether the Business, Turnover and Compliance Tests have been satisfied. COG910030 - Registering for the scheme.

  You must

• establish the reasons why false information was provided COG906110 and

• whether the application for gross payment would have been successful had the correct information been provided.In cases where you establish that the application for gross payment would have been unsuccessful you must

• consider cancellation of gross payment COG910110, and

• consider a penalty under S72 FA2004 (see below).Note you should take this action in relation to false information or documents provided to pass the Business & Turnover tests, as well as any identification of compliance failures. This includes Post Acceptance Checks as detailed at CISR44040.

  In cases where you establish that the application for gross payment would still have been successful, you must provide advice to the subcontractor about the importance of providing correct information on any application for registration.

  Registration for payment under deduction

  Where a subcontractor is registered for payment under deduction any false statements or documents are likely to be related to the identity of the subcontractor.

  Where you identify a false statement or document in connection with an application for registration for payment under deduction you must

• establish the reasons why false information was provided COG906110 and

• whether the application for payment under deduction would have been successful had the correct information been provided.In cases where you establish that the application for payment under deduction would have been unsuccessful you must

• consider de-registering the subcontractor

• consider a penalty under S72 FA2004 (see below).In cases where you establish that the registration for payment under deduction would still have been successful, you must provide advice to the subcontractor about the importance of providing correct information on any application for registration.

  (This content has been withheld because of exemptions in the Freedom of Information Act 2000) COG904570(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

  S72 FA2004 Penalty

  The legislation allows for a penalty not exceeding £3,000. Where it is not possible to locate the legal entity, for example in the case of a missing trader with no presence at the business address, or an insolvent business, from April 2021 it is now possible to charge the penalty to another person.

  The scope of Section 72 Finance Act 2004 penalties also applies to individuals or companies who are able to exercise influence or control over a person who is registering for the CIS; this will include agents, directors, company secretaries, or anyone HMRC believes is in a position to exercise influence and control over the business and/or the person making the CIS registration.

  Such persons will be liable to a penalty in two circumstances:

• where they themselves make a false statement or furnish a false document for the purpose of enabling another individual or business to be registered or

• where they encourage an individual or business to make a false statement or furnish a false document for the purpose of enabling themselves to be registered for the CISYou apply the penalty on a tariff basis according to the number of registration tests for which the subcontractor or another person has submitted or encouraged submission of false information or documents, and the level to which it has co-operated with your request for correct information or documents.

  The table below details the level of penalty:

  Description	Relating to	Penalty
  makes any statement, or furnishes any document, which he knows to be false in a material particular, or recklessy makes any statement, or furnishes any document, which is false in a material particular and co-operates with HMRC in identifying the false particulars with no attempt to conceal	One test	£1,000
  makes any statement, or furnishes any document, which he knows to be false in a material particular, or recklessly makes any statement, or furnishes any document, which is false in a material particular, and co-operates with HMRC in identfying the false particulars with no attempt to conceal	Two tests	£2,000
  makes any statement, or furnishes any document, which he knows to be false in a material particular, or recklessy makes any statement, or furnishes any document, which is false in a material particular, and does not co-operate with HMRC in identfying the false particuars and/or attempts to conceal	One or more tests	£3,000

  For example:

• There is no response to a request to supply evidence of the turnover declared on an application for Gross Payment Status when CISR shows the turnover in the qualifying period did not meet the Turnover Test. The evidence held shows the Turnover Test was not passed, and the refusal to provide evidence to support the application means it is reasonable to conclude that the subcontractor recklessly made the statement regarding the turnover. There has been no co-operation so the penalty is £3,000.

• The subcontractor responds to a request for evidence by providing invoices which are proven to be falsified (for instance by investigation with the contractor alleged to have been invoiced). The subcontractor made a statement to apply for Gross Payment Status, but knew the documents furnished were false. The subcontractor however did co-operate with our request, it only involves the turnover test, so the penalty is £1,000.

• A visit to the business address shows it is a shop unrelated to construction & the owner confirms he has traded there for 10 years and has never heard of the subcontractor business you are attempting to visit. You trace a new address & the subcontractor confirms that it deliberately gave a wrong address on the original application for registration and also gave the name of his son as he had been made bankrupt. The false information relates to both the identity and business address, but he has co-operated, so the penalty is £2,000.The example above would also apply to a subcontractor who falsified the business address and turnover figure to obtain Gross Payment Status, but confirmed this was the case. The penalty would be £2,000 as it relates to two tests.

  Follow the guidance at COG914180 if it is necessary to raise a formal penalty determination. The authorising officer will be the CIS Authorised Technical Officer who makes the decision on cancellation of registration under either net or gross payment status