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HMRC internal manual

Compliance Operational Guidance

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HM Revenue & Customs
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Supporting Guidance: employer compliance: guidance by subject: construction industry scheme (CIS): establishing the validity of CIS deductions suffered claimed by subcontractor

COG909230 explains how subcontractors who have suffered CIS deductions should claim credit for those deductions.

Up to and including 2012-13, limited company subcontractors who are also employers claim credit for the CIS deductions they suffered by reducing their monthly remittances and at the end of the tax year they enter the total deductions suffered in CIS Deductions Suffered box on their P35.

From 6 April 2013, limited company subcontractors who are also employers can claim credit for CIS deductions suffered by entering the amount on the Employer Payment Summary (EPS). This must be submitted to HMRC by the 19th of the month to make sure the monthly remittance is reduced, see example at COG904240.

Where an amount is claimed you will need to check whether the subcontractor/employer was entitled to claim credit for the deductions via their P35 or EPS and where they are whether the amount they have claimed is correct.

The effect of an incorrect claim for CIS Deductions Suffered is to reduce the net amount of PAYE/NIC/CIS deductions the employer/contractor is required to pay to HMRC. Where the employer has paid the correct amount of PAYE/NIC and CIS deductions this could give the false impression that the employer has overpaid and may result in an incorrect repayment or reallocation of payments.

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

In all other cases the Caseworker should first ensure that the matter is not already being reviewed by another part of HMRC. To do this the Caseworker must ensure that the following systems have been checked:

  • Caseflow & CISR (under PAYE ref) for any details of Employer Compliance or CIS review activity
  • in EBS ‘View Employer Notes’ for details of any Employer Office action or compliance activity
  • SA for sole traders and all partners for any notes on action taken to adjust SA return.

You should set ECR signal and enter contact details on CISR in accordance with COG909100 and note the compliance interest in EBS ‘Amend Employer Notes’.

Subcontractor is not a Ltd Company

Where a subcontractor is not a limited company you should write to him/her advising that only limited companies are able to claim credit for CIS suffered on their

  • P35 return (up to and including 2012-13)
  • EPS (from 6 April 2013)

and as such the claim is not allowable. Ask the employer to explain why they have made the claim in this way. Example of draft letter (Word 36KB).

If the subcontractor responds and accepts that the claim is incorrect or does not respond follow the guidance at COG915605.

Subcontractor is a Ltd Company

Where the subcontractor is a limited company you should compare the CIS deductions claimed in CIS Deductions Suffered box on the P35 or EPS with the deductions shown on the company’s subcontractor CISR record for the same period. The guidance on how to do this can be found at PAYE53012.

If the amount claimed is greater than the total deductions recorded on CISR you will need to issue a letter (Word 32KB) to the subcontractor company asking for their explanation for the discrepancy and or any supporting evidence.

If the company responds

  • and accepts that the amount claimed is incorrect the guidance at COG915605 should be followed
  • and advises that they suffered the CIS deductions claimed but the contractor did not include them on a CIS300 return and or give them a Payment and Deduction Statement you should ask them to provide the supporting evidence requested in your letter and you should make a referral to RIS to consider whether a compliance check of the contractor is necessary
  • and produces Payment and Deduction Statements and bank statements which support the amount claimed you should accept the amount claimed on the P35 or EPS but make a referral to RIS to consider whether a compliance check of the contractor is necessary
  • and are unable to provide any evidence to support the amount claimed in CIS Deductions Suffered box you should not accept the claim and follow the guidance at COG915605
  • and states that the CIS deductions have been posted to an earlier sole trader or partnership record or the directors personal UTR you should follow the guidance at CISR77610 and CISR77620.

If the company does not respond follow the guidance at COG915605.

Where it becomes apparent during your enquiries that the employer/contractor does not exist details of the case should be sent to the RIS Repayment Security Team, Referrals mailbox.