CISR46020 - Register and maintain subcontractor: compliance test: sole traders

To satisfy the compliance test sole trader applicants must have done all the following during the 12 months to the date of application (the qualifying period)

• sent in any SA return due within that period
• complied with all requests for accounts or other relevant information
• paid all tax and Class 4 NIC including any Interest, Penalty or Surcharge, and also including all PAYE and CIS deductions due in the role of employer/contractor
• complied with all other relevant obligations under TMA70, ICTA88, and FA04.

Paragraphs 4(1)-(5), Part 1, Schedule 11, FA2004, taken together with Regulations 33 - 36 SI2005/2045, require that applicants must show that throughout the 12-month qualifying period

• they complied with their tax obligations in the UK or elsewhere

or

• had no obligations because they were unemployed

or

• had no obligations because they were in full time education

You need to be confident that you know what the subcontractor has been doing in the 12 months to the date of application. You may need to make enquiries about this where there seem to be gaps in the subcontractor’s history.

In addition, where a subcontractor had control of a company in the 12 month qualifying period, Paragraph 4(2), Part 1, Schedule 11, FA2004 requires that the company must have complied with its tax obligations during that period.

Finally, there must be 'reason to expect' that the applicant will continue to comply with tax obligations. (See CISR46100 for more details on the 'Reason to expect test').

Reasonable excuse

You may ignore certain failures to comply with the above conditions where

• the applicant had reasonable excuse for the failure to comply,

and

• once the excuse ceased to apply, the applicant then complied with the obligation without unreasonable delay.

See CISR81020 for more information about what can be regarded as reasonable excuse.

Timely compliance

The legal requirement is not merely that the applicant must have fulfilled tax obligations arising in the 12 month qualifying period preceding the date of application. Those obligations must, in addition, have been fulfilled within the time allowed in law else this requirement is not satisfied and the application fails the compliance test.

However, there are certain tolerances specified in the regulations whereby HMRC will overlook a compliance breach. See CISR46080 for more information about these tolerances.

See CISR18140 for information on subcontractors with

• Voluntary arrangements
• Informal arrangements