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HMRC internal manual

Compliance Operational Guidance

Supporting Guidance: employer compliance: guidance by subject: construction industry scheme (CIS): payments 'grossed up' by the contractor

The CIS Regulations make no provision for making payments to subcontractors ‘free of tax’. ‘Free of tax’ is not to be confused with making payment gross. ‘Free of tax’ payments are described at COG913000 onwards.

A contractor should

  • not ‘gross up’ to meet the subcontractor’s liability but
  • should make deductions from the actual amounts to which the subcontractor is due.

One reason for this is that the amount which a contractor is liable to deduct is not related to the subcontractor’s tax liability.

Where a contractor has ‘grossed up’ payments to a subcontractor the caseworker should

  • accept the situation as satisfactory for the past
  • advise the contractor that ‘grossing up’ is not provided for under the Regulations
  • tell the contractor that the subcontractor must suffer deductions in future, if credit for deductions is to be allowed to the subcontractor
  • send a report to the contractor’s Employers Section detailing the facts and the instructions given.