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HMRC internal manual

Compliance Operational Guidance

Supporting Guidance: employer compliance: guidance by subject: construction industry scheme (CIS): contractor makes voluntary disclosure of non-operation of scheme

Background
Action
Process
Action by LC Construction Industry Caseworker

Background

A new process has now been agreed for handling all contractor disclosures that are currently being received within HMRC. These disclosures include any notification in writing or via telephone from a contractor or the contractor’s agent that:

  • The contractor has failed to register with HMRC as a contractor and payments to a subcontractor have already been made; resulting in a complete failure to operate the Construction Industry Scheme.
  • The contractor is registered for CIS as a contractor but the contractor or agent now discloses that CIS300 returns should have been submitted for periods prior to the date of the disclosure.
  • The contractor is registered for CIS as a contractor but the contractor or agent now discloses that previous CIS300 returns were incorrect (including nil returns) and now wishes to have the returns corrected or to submit further returns for the same periods as already submitted.
  • The contractor or agent advises that the contractor has failed to deduct tax or deducted tax at an incorrect rate.

Please apply the above criteria in deciding if a CIS voluntary disclosure has been made.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

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Action

All construction industry staff to ensure that all contractor disclosures are referred to Risk Intelligence Service by following the guidance below.

To avoid the issue of system generated automatic late filing penalty notices please do not amend the start date on the EBS record. The start date of the contractor scheme should always be the date that the contractor made their first payment to a subcontractor. However if you later discover that the actual start date was in fact earlier than originally disclosed the original start date should not be amended on EBS.

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Process

Voluntary disclosures are classed as either ‘prompted’ or ‘unprompted’ and relate to cases where there is no ongoing compliance activity into the contractor.

Unprompted Disclosures

If a disclosure is made as a result of a publicity campaign or other HMRC activity and is outside of an ongoing compliance intervention it is classified as ‘unprompted’.

Prompted Disclosures

If a disclosure is made after HMRC contact with the contractor, for example, after telling them that we wish to make a compliance check of their return or after arranging a visit to their premises to explore risks we have identified, it is classified as ‘prompted’.

The person in receipt of the voluntary disclosure should:-

  • check Caseflow to ensure that there is no current review in progress. If there is then contact the case owner immediately and forward any correspondence on to them.

If there is no current review in progress:

  • write or telephone the contractor acknowledging the disclosure and, where it is not apparent what has prompted the disclosure seek a full explanation as to the reason the disclosure has been made
  • accept any payment on account on a ‘without prejudice’ basis or where a payment has not been made suggest to the contractor that they may wish to make one to avoid accruing interest
  • advise the contractor that someone will contact them in the next 30 working days to inform them how we intend to proceed
  • send all disclosures by following the process explained on the Compliance Referrals and information requests page.

If disclosure is made by way of written communication then copies of any supporting paperwork should be sent under separate cover to:-

  • National CIS RIS (Nottingham), 1st Floor Fitzroy House, Castle Meadow Road, Nottingham NG2 1BD.

Original papers should be retained until requested by the compliance caseworker and a note made on EBS as to their location.

The referral should be prominently noted in the reason for referral as ‘Voluntary Disclosure’ and should provide information as to whether the Voluntary Disclosure is prompted or unprompted.

In cases where a review is not in progress the disclosure papers will be passed to RIS Ops and thereafter to the relevant Customer Groups/directorates contacts for distribution.

For all SME population cases RIS Ops will complete a risk assessment of the case and where

  • The disclosure was prompted and/or other risks are identified prepare a Standard Information Package and send the case to the appropriate LC Workflow Manager. The case will be set up as either a ‘full’ or ‘aspect’ Compliance check.
  • The disclosure was unprompted and other risks are identified prepare a Standard Information Package and send the case to the appropriate LC Workflow Manager. The case will be set up as a ‘full’ Compliance Check.
  • The disclosure was unprompted and no other risks are identified forward to LC to carry out action set out below.
  • Completed packages will be flagged as ‘Urgent - CIS Voluntary Disclosure’.

The relevant LC contacts are

  • For PBG/SME/L&C businesses the workflow manager.

These contacts will ensure that cases are delivered to caseworkers to ensure that the employer receives a response within the 30 day period.

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Action by LC Construction Industry Caseworker

Where you receive a SIP or notification relating to a voluntary disclosure it is important that you make contact with the contractor within the 30 day period in respect of the amount disclosed.

For prompted disclosure with or without other risks

  • calculate and pursue the amount arising from the prompted disclosure and any other underpayments arising from other inaccuracies identified as part of the risk assessment
  • calculate and pursue interest
  • consider penalties
  • recover all amounts due by contract settlement
  • record the full amount recovered as class 6 settlement
  • record the underpayment, interest arising from all inaccuracies identified during the compliance check together with any penalty additions.

For an unprompted disclosure with other risks

  • the amount arising from the unprompted disclosure must be set up as an Employer Amendment
  • where other underpayments are identified further risks should be set up-

    • for the SME population as a ‘full’ compliance check
    • for large employers the L&C Caseflow protocol should be followed
  • calculate and pursue interest
  • consider penalties
  • recover all amounts due by contract settlement
  • record the full amount recovered as class 6 settlement
  • record the underpayment and interest in respect of the unprompted disclosure on the employer amendment
  • record the underpayment and interest arising from risks not included in the original disclosure against the appropriate risks.

It is necessary to create separate entries in respect of the unprompted disclosure and other risks because of compliance revenue reporting requirements (COG915560).

For an unprompted disclosure with no other risks

  • calculate and pursue the amount arising from the unprompted disclosure
  • calculate and pursue interest
  • consider penalties
  • recover all amounts due by contract settlement
  • record the full amount recovered as class 6 settlement
  • record the amount in respect of the disclosure and interest on the employer amendment
  • because of compliance revenue reporting requirements the penalty only can be claimed under Broader Coverage code L03.