CISR43180 - Register and maintain subcontractor: gross payment or payment under deduction: two or more sole traders or partnerships merging to form a new company

This is different to the situation described at CISR43150. In this case two or more existing businesses merge. The company created should be treated as a new business. The new company should complete form CIS 305 (company application) that should be signed by the company secretary of the new company. The new business must apply for gross payment status before it can be paid without deductions being made.

SI2005/2045 details the evidence that a new business may use to satisfy the requirements of the turnover test, business test and compliance test.

Where the CIS Team at NICO receives an application involving a change in the type of concern where two or more previously registered sole traders or partnerships have now merged to form a new company, these will be referred (with a covering memo) to the Processing Office of the company for processing of the application.

Turnover test

The type of concern at the time of application is a company. The new business is able to use evidence of the turnover of the previous businesses in the qualifying period to satisfy the requirements of the turnover test. The qualifying period is the 12 months preceding the date of application. But the new company will only be able to do this where the trades of the two previous, separate businesses are merged into the trade of the company.

The new business may take the aggregate of the amount of relevant payments received by the previous business in relation to carrying on the business during the qualifying period.

Where two separate businesses close down and another separate, unrelated business opens as a company, whose directors are the two previous sole traders, or partners in the two partnerships, it will not be able to use the ‘inherited turnover’ of the former businesses

Business and compliance tests

The new business is able to use evidence that the old partnerships undertook work within the United Kingdom Construction Industry to satisfy this part of the test.

The turnover test and business tests are run first. The compliance test is only undertaken when both the turnover test and business test has been passed.

All “relevant persons” must be able to satisfy the requirements of the compliance test at the date of merger, in order for the new business to pass the compliance test. See CISR44000 onwards for more detail regarding the compliance test.