ECH14650 - Construction Industry Scheme: CIS - From 6 April 2007 - Cancellation of Gross Payment Registration

ECH14635

explains the different tax treatments within CIS.

ECH14640 explains what conditions a subcontractor must satisfy to pass the Compliance Test for gross payment registration and how HMRC will routinely check that this condition continues to be satisfied.

You must familiarise yourself with the conditions of the Compliance Test. Information can be found in the CIS Manual at CISR46000.

You will identify compliance failures which would not be identified as part of the Tax Treatment Qualifying Test (TTQT). For example,

• treating workers as self employed when the correct employment status is employed,
• failures operating CIS which are not apparent from CIS300 contractor returns,
• failures operating PAYE which are not apparent from P35 employer returns.

Compliance failures such as these will have a bearing on whether the subcontractor has satisfied the conditions of the Compliance Test.

Before commencing the compliance check you must consider whether the subcontractor would pass TTQT in the 12-month period prior to the check (the qualifying period). You can do this by requesting an ‘information only’ run of TTQT on the CIS System. This will provide the TTQT result without cancelling gross payment if that result is a fail.

The qualifying period is the 12 months to the date you consider your determination as required by s66(1) FA2004. If a determination is not considered and no notice, as required by s66(5) FA2004 is issued, following the “information only” TTQT, then the qualifying period ends for that particular review period.

Where failures are identified during the compliance check you must

• consider whether the failures occurred in the qualifying period.

Review Failures within the Qualifying Period

You must consider the failures arising from the compliance check against the conditions for satisfying the Compliance Test.

If the compliance check failures identified by you mean the Compliance test fails you should

• run information only TTQT to identify any additional compliance failings.
• refer the case to the Independent HO to consider cancelling gross payment registration manually in accordance with CISR43600.

If the compliance check failures mean the Compliance test is passed you should

• run the information only TTQT and proceed as follows

TTQT passes

• Provide guidance for the future
• Provide advice to the subcontractor about the potential impact any failures to comply with their obligations may have on their registration for gross payment.
• Remind the subcontractor that there is an annual scheduled review.

You should not get drawn into any discussions as to when the automatic TTQT will be carried out. It is sufficient to advise that this will be at least once in any 12-month period.

TTQT fails

• Make sure that the subcontractor is aware that gross payment registration will be cancelled.
• Arrange for the ‘ad-hoc’ TTQT to be run.
• Make sure the subcontractor is made aware of any failures identified during the compliance check (and include these on the 308 notice).
• Make a record of any further failures within the qualifying period which have occurred since your original consideration.
• Check whether the subcontractor appeals against cancellation of gross payment registration.
• Where an appeal is received send details of the additional failures to the HMRC officer handling the appeal.

Review Failures outside the Qualifying Period

Where you identify failures which are outside the qualifying period you should

• provide guidance for the future, and
• provide advice to the subcontractor about the potential impact any future failures to comply with their obligations may have on their registration for gross payment.

In some instances the qualifying period will encompass periods up to and including 5th April 2007 as well as periods from 6th April 2007. When considering failures prior to 6th April 2007 you must

• consider whether the failures are minor and technical.

Where they are minor and technical you should

• provide guidance to the subcontractor for the future

Where they are not minor and technical you should

• refer the case to CISAT before taking any action to cancel gross payment registration.

In any cases where the failure is considered to be fraudulent you must

• refer the case to the Evasion Referral Team (ERT) – Bristol on the Evasion Referral Form marked “CIS Referrals” – for the removal of Gross Payment Status”. There is no monetary limit for such referrals.

Whenever a failure results in an underpayment you must

• take appropriate settlement action ( ECH22000).

You may also identify situations where the subcontractor has not satisfied the

• Business test or
• Turnover test.

In these situations you should

• consider cancellation of gross payment registration
• refer the case papers to the CIS Advisory Team (Technical).

More guidance on cancellation of gross payment is in the CIS Manual at CISR16110.