CISR43070 -Tax Treatment Qualification Test (TTQT)
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The Tax Treatment Qualification Test (TTQT) is an automated process that checks the compliance history of an applicant subcontractor applying for gross payment status within the ''qualifying period'' (twelve months) prior to the date the TTQT is run. CIS will check other computer systems such as Self Assessment (SA) and Corporation Tax (COTAX) to check that tax returns and payments have been made on time, it will also look at BROCS where the subcontractor also acts as an contractor or employer, to check that all tax payments deducted from their own subcontractors and employees have also been paid on time, and finally CIS will also look to see if the subcontractor has filed all their monthly contractor returns (CIS300) on time. TTQT will also be automatically run when a new subcontractor makes an application for gross payment status.
TTQT will look at each ''participant'' connected with the application. So for a sole trader there will only be one participant, for a partnership there will be more than one participant, and for a company there could be one or more participants including the Directors or Shareholders in the company. TTQT will also only look at payments and obligations that have become due during the ''qualifying period'', any obligation that has not yet become due will be ignored for the purposes of the test.
Where each participant has met all their taxation obligations on time, TTQT will score a ''Pass'' and gross payment status can be allocated to the subcontractor, where this has been applied for. Where the applicant has not met one or more of their tax obligations TTQT will score the application as a ''Fail'', and the subcontractor will be allocated net payment status.
From 27t h October 2008, TTQT will automatically apply a de-minimis limit of £99.99 against any liability either paid late or still outstanding within the ‘qualifying period’. This limit will be applied against any or all of the following payments:
- Income Tax
- Class 1, 1A, or Class 4 National Insurance contributions
- Corporation Tax
- Any Penalty, Surcharge or Interest
- Payments due under PAYE in respect TAX/NIC/CIS
This de minimis limit can be applied any number of times against each of the above obligations, and where TTQT now finds any liability that is £99.99 or less instead of failing TTQT, this obligation will now pass.
In addition, any failures in respect of late payment of interest charges or outstanding interest charges for both Corporation Tax and Self Assessment will, from 23r d November 2009, be ignored for the purposes of the Tax Treatment Qualification Test.
Employer tax debts
Up until the 23r d November 2009, any TTQT run either at Registration, scheduled review, ‘Ad-hoc’ or ‘Information only’, would have identified any late or outstanding payments as an employer or contractor for all months (including months 12 & 13) during the ‘qualifying period’. From 23r d November 2009, TTQT now ignores any failures at months 12 & 13 for the purposes of determining whether the TTQT is a ‘Pass’ or a ‘Fail’. This is done because TTQT cannot automatically identify the correct due date of any payments made in respect of Class 1A NIC which falls due by 19t h July each year.
However, the fact that TTQT now ignores these obligations does not mean, for the purposes of the Compliance Test, that these obligations cannot be brought into account in any Manual Compliance Test undertaken. Any such late payments at months 12 & 13 in respect of PAYE paid later than 19t h April may still be taken into consideration.
Scheduled Review
From October 2007 TTQT will also be run annually against those subcontractors who already hold gross payment status on CIS, this process will be known as ''Scheduled Review'', see CISR49000 for more guidance regarding this.
Quarterly payment cases
When the automated TTQT runs and the system checks the payments made by the subcontractor in their capacity as a contractor / employer who pays quarterly, the system will only check for payments made on time in months 3, 6, 9 & 12. Where the contractor has made quarterly payments but incorrectly used payslips intended for other months such as 1, 2, 3 & 4 (for example), the automated TTQT will fail as there are no payments in months 6, 9, 12 and Month 3 appears to be paid late.
When carrying out a manual TTQT check or as a result of an appeal submitted by the subcontractor, if it is obvious that this is what has happened you may amend the automated TTQT result where you are satisfied that it should have passed.
‘Time to Pay’ arrangements
Where a ''time to pay'' arrangement has been agreed between an individual participant and Debt Management & Banking (DMB) regarding a liability that is about to become due, if the arrangement has a start date before the due date and is within the ''qualifying period'' TTQT will not treat the debt as becoming due until the end date of the TTP arrangement. Therefore any liability covered by the arrangement cannot be treated as outstanding or paid late unless it is after the end date for the TTP arrangement. TTQT will therefore only ''Fail'' such cases where any of the liability covered by the TTP remains outstanding after the ''end date'' for any TTP arrangement.
If however, the TTP arrangement has a start date which commences after the liability has already become due, then TTQT will fail the application provided the liability falls within the ‘qualifying period’, as the liability was not paid by the due date.
If an agreement to enter into a ‘time to pay’ arrangement is rejected by Debt Management & Banking (DMB) then TTQT will run in the normal manner, and all failures of late payments identified should be taken into consideration in considering whether the ‘Compliance Test’ is passed or not.
Claims of problems with ‘Cash-flow’
We have, in the past, only accepted cash-flow problems as a reasonable excuse (CISR81020) where the subcontractor could clearly demonstrate that this was due to the unexpected failure of one or more of his contractors’ businesses or sudden difficulty in arranging finance, where the general background was one of good compliance.
Where a subcontractor has missed a payment, or payments after 1 June 2008, and claims, as a reasonable excuse, that it was due to cash-flow problems, you can take a more sympathetic view where the subcontractor has some evidence of general financing difficulties, and has had a reasonably good payment record, prior to that date.
Group Payment Arrangements
Where a company within a group has entered into a group payment arrangement (see the COTAX Manual) and holds gross payment status under CIS, TTQT will not be able to identify late payments of Corporation Tax made by that company within the group to HMRC. Where you become aware that such a company has failed to make its payments of Corporation Tax on time, then you will need to use the function ‘Change TT’ to change the payment status of the company from gross to net (see CISR43610).
Manual TTQT check
When carrying out a manual TTQT check (See CISR95020), you should also bear in mind that a return or payment may have become due just before the date of your compliance check. If the manual TTQT fails when taking into account the late submission of this latest return or payment, but would have passed otherwise you should apply a tolerance of:
- 28 days for the most recent late payment or SA / COTAX return
and
- 38 days for the most recent and penultimate contractors monthly return (CIS300)
This will allow time for the payment or return to be processed and logged on to the system. These tolerances must not be applied to any other obligations of the subcontractor that fall due earlier in the qualifying period. Please see examples 1 to 4 below:
Example 1
A manual TTQT check is carried out on 7 March 2009, the check reveals that the only compliance failures the subcontractor has are as follows:
- Paper CIS300 to 5 July 2008 submitted 30 July 2008 (less than 28 days late)
- Paper CIS300 to 5 October 2008 submitted 28 October 2008 (less than 28 days late)
- Paper CIS300 to 5 January 2009 due by 19 February 2009 not yet logged.
Although TTQT has identified 3 late contractor returns for the applicant, as the last contractor return has not been logged and 38 days has not yet elapsed since the due date for the return, the TTQT may be treated as a ''Pass''.
Example 2
A manual TTQT check is carried out on 25th February 2009, the check reveals that the only compliance failures the subcontractor has are as follows:
- Paper CIS300 to 5 July 2008 submitted 30 July 2008 (less than 28 days late)
- Paper CIS300 to 5 October 2008 submitted 28 October 2008 (less than 28 days late)
- Paper CIS300 to 5 January 2009 due by 19 January 2009 not yet logged.
- Paper CIS300 to 5 February 2009 due by 19 February 2009 not yet logged
Although TTQT has identified 4 late contractor returns for the applicant, as the last return has not been logged and 38 days has not yet elapsed since the due date for the return, this return may be ignored. The return for January 2009 is now 37 days late, but as this again falls within the 38 day tolerance for a contractor return. This TTQT may be treated as a ''Pass''
Example 3
A manual TTQT check is carried out on 7 March 2009, the check reveals that the only compliance failures the subcontractor has are as follows:
- Paper CIS300 to 5 July 2008 submitted 15 August 2008 (more than 28 days late)
Although TTQT has identified only one late contractor return for the applicant, as it is more than 28 days late, the TTQT must be treated as a ''Fail''.
Example 4
A manual TTQT check is carried out on 7 March 2009, the check reveals that the only compliance failures the subcontractor has are as follows:
- Self Assessment 1 Payment on account due 31 January 2009 paid 26 February 2009.
- Self Assessment 2 Payment on account due 31 July 2009 paid 2 September 2009.
Although TTQT has identified two late SA payments for the applicant, the first is not more than 28 days late, but the second one is more than 28 days late. The TTQT must be treated as a ''Fail''.
Also from October 2007, it will be possible to run a ''Information only'' TTQT. This will not alter the payment status of the subcontractor, and no output will be generated externally from it. However, this will give you some idea whether or not a subcontractor would be likely to lose gross payment status, were a TTQT to be run now. This may be useful to Employer Compliance officers who are undertaking an employer compliance review of the subcontractor.
