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HMRC internal manual

Compliance Operational Guidance

Supporting Guidance: employer compliance: guidance by subject: construction industry scheme (CIS): subcontractor claiming credit for deductions suffered

When making CIS deductions from the subcontractor, a contractor must provide the subcontractor with a record of the gross payment and amount deducted.

Under the CIS Scheme to 05-04-07 this was done by the contractor providing the subcontractor with a CIS voucher for each payment showing the amount of gross payment, and where necessary the direct cost of materials together with the amount of CIS deduction made by the contractor.

Under the CISR Scheme from 06-04-07 vouchers are not supplied. Instead the contractor reports the same information to HMRC for each subcontractor on monthly CIS300 and also provides the subcontractor with a PAY & Deduction Statement (PDS) reflecting the same details.

The information included on each monthly CIS300 return is then recorded against the individual subcontractor’s own CIS record on CISR.

A subcontractor is entitled to a credit for amounts that have been deducted which are treated as payments on account of tax. How they do this depends on whether they are an SA subcontractor or limited company.

SA subcontractor (sole trader or partnership) can claim credit for the CIS deductions suffered when submitting their SA return.

The subcontractor may also submit the CIS vouchers / PDS statements with the return but is under no obligation to do so. When the return is captured an automatic comparison is made between the deductions claimed on the SA return and the total payments made to the subcontractor from all contractors during the tax year - see CISR75020.

Limited Company subcontractors only can claim credit for CIS deductions by reducing their monthly payments of CIS/PAYE/NIC/SL due to HMRC.

Up to and including 2012-13, the claim is made at the end of the tax year when the company records the total amount of deductions suffered in CIS Deductions Suffered box on their annual P35 return.

From 6 April 2013, the claim for CIS deductions is included on the Employer Payment Summary (EPS) at the end of each tax period (see COG904230).

The amount claimed is compared to the company’s CIS record to verify the claim for deductions is accurate.

Where a discrepancy arises the guidance at COG909235 should be followed.

There may also be situations where:

  • the contractor pays subcontractor’s deductions but no deductions were actually made
  • the contractor makes deductions but does not return them on monthly CIS300
  • the subcontractor makes good to the contractor the deductions due.

The following guidance covers these situations.

Contractor pays subcontractor’s deductions due but no deductions actually made

There will be instances where the contractor has paid the amount he should have deducted to HMRC but has not made any deductions from the subcontractor (COG909200, COG909210 and COG909330). The subcontractor is not entitled to a credit for such deductions.

The caseworker should make sure that credit for deductions is not allowed by following the guidance at COG909210.

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Contractor has made deductions but not returned them on CIS300

There will be instances where the contractor has deducted the CIS tax from the subcontractor but has not returned the details on a CIS25 voucher/CIS300 monthly return.

In these circumstances the subcontractor will be entitled to a credit for the tax he has suffered and the CIS caseworker should

  • make a note on the subcontractor’s SA Record/EBS in limited company cases of the credit that is correctly due
  • complete the attached stencil (Word 33KB) and send to the subcontractor’s accounting office/Employers Office if a limited company.

Where the subcontractor makes a claim for these deductions, see COG909235.

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Subcontractor makes good to the contractor the deductions due

If such a claim is made the contractor should be asked for satisfactory substantiating evidence in support, such as bank statements showing the receipt from the subcontractor. Only when such evidence is produced should the subcontractor’s accounting office/Employers Office be advised of the credit due on the attached stencil (Word 33KB).

Note: Any claims pending under Regulation 9(3)/(4), will need to be withdrawn by the contractor before you proceed with the above, if a claim has already been allowed then no deduction will be due to the subcontractor CISR72080.

The CIS caseworker should not become involved in any discussions between the contractor and subcontractor in relation to making good the tax see COG909200.