CISR77610 - Deductions: Company CIS deductions claimed against P35 liability but payments recorded against another subcontractor’s record(s) - Initial action by the Employers Section

If, when reviewing the Post Capture Work List you encounter a company that is seeking to set off some CIS deductions against its P35 liability, but the payments appear to be recorded on CIS under an earlier sole-trader or partner record, this may be because the sole-trader or partner has

• not told the contractor about the existence of the limited company, and/or
• not registered the company for CIS.

Consequently, it is likely in these circumstances that the contract between the sole-trader or partnership and the contractor remained unchanged throughout. In order to resolve the issue, you will need to approach the company to obtain an explanation of why this has happened.

Therefore, in the first instance, you should

• write to the company asking why it believes the contractor issued payment and deduction statements using the sole-trader or partnership details, and
• request sight of written evidence, for example, copies of bank statements, showing that the company actually received the payments in question,
• BF the case for 28 days for a response, and
• take action in accordance with the following paragraphs depending on the response you get to your enquiry.

Company says contractor was unaware of the existence of the company (or no response to your enquiry)

If you get no response, or the company tells you the situation arose because its director failed to tell the contractor about the limited company, then you should

• tell the company that the CIS deductions on the form P35 cannot be allowed and will be reduced to nil accordingly, and
• advise the company that it must make good any resulting underpayment on the P35 without further delay.

This is because, if the contractor was unaware of the existence of the company then, clearly, no contract existed between it and the contractor. As such, the contractor will have made the payments direct to the sole-trader or partnership with whom they had originally contracted for the work in question.

Credit for any deductions will have to be dealt with on submission of the Self-Assessment return by the sole-trader or partnership, at the appropriate time. You do not need to contact the SA Processing Office about this, but you should make a note of your actions on employer notes within EBS.

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Company claims contractor knew the contract was with the company but is unable to produce evidence to support this

If the company is unable to show any documentary evidence that the contractor made the payments to it, then it is safe to assume that no such payments were made to the company by the contractor. In these cases, you should

• tell the company that the CIS deductions on the form P35 cannot be allowed and will be reduced to nil accordingly, and
• advise the company that it must make good any resulting underpayment on the P35 without further delay.

Credit for any deductions will have to be dealt with on submission of the Self-Assessment return, by the sole-trader or partnership, at the appropriate time. You do not need to contact the SA Processing Office about this, but you should make a note of the actions taken on employer notes within EBS.

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Company claims contractor knew the contract was with the company and is able to produce evidence to support this

The company may tell you that it told the contractor about the existence of the company, before the company started to receive the payments, and also agreed with the contractor that the contract was now with the company rather than the sole-trader or partnership. If the company claims that this is what happened but does not know why the contractor continued to make payments in the name of the sole-trader or partnership, or the contractor made a mistake in making payments in this way, you should

• refer the case to the SA processing office for the sole-trader or partnership for them to take the action as described in the Action Guide at CISR77620,
• include copies of all relevant correspondence in your submission to the SA processing office, and
• BF the case for 28 days to allow the SA processing office to follow it up.

The case will be returned to you from the SA processing office with advice on how much of the CIS deductions, if any, may be properly set against the company’s P35 liability for the year concerned. You should make a note of the actions taken on employer notes within EBS.