CISR43040 - Register and maintain subcontractor: gross payment or payment under deduction: changing a subcontractor's tax treatment from gross to net

A subcontractor’s tax treatment may be changed from gross to net:

• by a Higher officer during an examination of a taxpayer’s compliance record
• by a Higher officer as part of an examination of the turnover test figures
• as a result of an unsuccessful appeal by the subcontractor against the tax treatment change
• by a compliance officer where there is evidence of fraud.

You must manually write to the subcontractor telling them of the fact that their tax treatment is being changed from gross to net, the date from which the change will take effect, and the reasons why gross tax treatment is being withdrawn, as no output is automatically issued by CISR to the subcontractor following the use of function [Change TT].

The subcontractor can appeal against the issue of the notice withdrawing gross payment status. The appeal must be made to an officer of HM Revenue & Customs within 30 days of the notice cancelling gross payment status. The subcontractor then has the right to ask for an internal review of the decision , or to notify the appeal to the tribunal for a hearing .

Any appeal made against the withdrawal of gross payment status should be handled by the section that withdrew the gross tax treatment. However if the subcontractor requests an internal review of the decision this will be handled by someone outside of the direct management chain of the Decision Maker. If the subcontractor then notifies the appeal to the tribunal, the appeal papers will be requested by the Appeals Unit who will be responsible for presenting the appeal before the tribunal.

A subcontractor will not be able to apply to change from net to gross payment if a ''live'' exclusion period has not ended. An ''exclusion period'' will begin on the day that gross payment status was removed, and will continue for a twelve month period from this date.

Tax treatment changed as a result of a scheduled review

The legislation states that where gross payment registration is cancelled, there must be a ‘prescribed period’ of 90 days from the date of issue of the notice to the effective date of cancellation. The notice (see above) must provide the subcontractor with the reasons for the cancellation the notice must also tell the subcontractor that they have been registered for ‘Net’ payment status.

Tax treatment changed where there is evidence of fraud

An officer of HM Revenue & Customs may at any time make a determination cancelling a person’s registration for gross payment if they have reasonable grounds to suspect that the person –

• was registered for gross payment on the basis of false information
• has fraudulently made an incorrect return or provided incorrect information whether as a contractor or a subcontractor.
• has knowingly failed to comply (whether as a contractor or subcontractor) with the CIS provisions.

Where a determination is made for the reasons detailed above the cancellation takes effect immediately.

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

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