Supporting Guidance: employer compliance: guidance by subject: construction industry scheme (CIS): regulation 9 directions - background
In certain circumstances HMRC can direct that a contractor is not liable for amounts under- deducted.
This is provided for by Regulation 9 of The Income Tax (Construction Industry Scheme) Regulations 2005 and this regulation applies to situations both pre and post 06-04-2007.
It should be noted however, that if a Regulation 13(2) determination has already been issued, or the contractor has negotiated, agreed and entered in to a Class 6 settlement contract Regulation 9 claims cannot be retrospectively considered (see CISR83040 and CISR83060).
Penalties - Please see COG909365 regarding the impact of a direction granted under Regulation 9(5) following a successful claim made under either Regulation 9(3) or Regulation 9(4).
The relevant subsections of Regulation 9 are as follows:
Regulation 9(3) - Condition A
The legislation provides that, where a contractor fails to make a deduction from a subcontractor but can satisfy an Officer of HMRC that the failure to make a deduction arose from an ‘error made in good faith’ or a ‘genuine belief’ that the payment was not within the scope of the Scheme and that he took reasonable care to comply with S61 FA 2004 and the Regulations, then an Officer of HMRC may direct that the contractor is not liable to pay the amount due.
When considering a direction under Reg9(3) the Construction Industry (CI) Caseworker should follow the guidance at COG909370.
Regulation 9(4) - Condition B - Where the subcontractor from whom the contractor failed to make a deduction was
a) not liable to tax on the payment, or has made a return of their income and profits in which the payment or payments made by the contractor were taken into account and the subcontractor has paid the income tax and Class 4 NIC, or corporation tax due in respect of such income or profits, and
b) the contractor requests that HMRC make a direction under Regulation 9(5) then, an Officer of HMRC may direct that the contractor is not liable to pay the amount due.
There is no right of appeal against a refusal by HMRC to give a direction under Reg 9(5) where ‘Condition B’ of Reg 9(4) is not met.
When considering a claim under Regulation 9(4) the CI Caseworker should follow the guidance at COG909380.
Regulation 9(5) - allows for an Officer of HMRC to direct that the contractor is not liable for the amounts under-deducted if a contractor satisfies ‘condition A’ of Reg 9(3) or ‘condition B’ of Reg 9(4).
Regulation 9(6) - allows for an officer of HMRC to refuse to make a direction under Regulation 9(5) where the contractor has failed to satisfy ‘Condition A’ of Reg 9(3) by giving notice to the contractor stating a) the grounds for the refusal, and b) the date on which the refusal notice was issued.
Regulation 9(7) - allows for the contractor to appeal against a refusal notice under Reg 9(6).