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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): regulation 9(5) directions - impact of directions under regulation 9 on penalties

A direction granting relief to a contractor is given under Regulation 9(5) The Income Tax (Construction Industry Scheme) Regulations 2005.

All directions under Regulation 9(5) must be authorised by the CIS Functional Lead Team following the referrals outlined at COG909370 for a claim under Regulation 9(3) and COG909380 for a claim under Regulation 9(4).

Such a direction is given when a successful claim under Regulation 9(3) Condition A or Regulation 9(4) Condition B has been made.

The impact of each type of successful claim on penalties for submission of inaccurate CIS300 monthly returns and / or late filing of CIS300 monthly returns is as follows:

Regulation 9(3) Condition A

A successful claim under Condition A means that an officer of HMRC has been satisfied that the contractor demonstrated that reasonable care was taken to comply with Section 61 FA 2004 or the contractor had a genuine belief that Section 61 FA 2004 did not apply to a construction contract payment.

If an officer of HMRC has been satisfied as such then the circumstances leading to that satisfaction will be sufficient to also provide a reasonable excuse that any penalty chargeable for submission of an incorrect CIS300 monthly return (Section 98A(4) TMA 1970) or an inaccurate CIS300 monthly return (Sch 24 FA 2007) should not be charged.

It also follows that the same reasonable excuse will exist in relation to the penalties chargeable under Section 98A (2) (b) TMA 1970 or Sch 55 FA 2009 for the failure to submit CIS300 monthly returns in the same period covered by the direction under Regulation 9(5) and should also not be charged.

The reasonable care and reasonable excuse will only be relevant to the monthly periods covered by the direction and will cease to be relevant for any subsequent payments for which Section 61 FA 2004 applies or subsequent periods for which a return then becomes due.

Regulation 9(4) Condition B

A successful claim under Condition B means that an officer of HMRC has been satisfied that the deductions that should have been made from a construction contract payment in accordance with Section 61 FA 2004 have been fully accounted for by the relevant subcontractor under ITSA or CTSA and as such the contractor can be relieved by a direction under Regulation 9(5) from also having to pay the amount of the deduction. This avoids the situation where the same construction contract payment is ‘double taxed’.

The relief given under Regulation 9(5) has no effect on any incorrect or inaccurate CIS300 monthly return penalties (Section 98A (4) TMA 1970 or Sch 24 FA 2007) or the penalties for the failure (Section 98A(2)(b) TMA 1970 or Sch 55 FA 2009) to submit CIS300 monthly returns as the requirement to submit a correct and accurate return by the relevant filing date still applies. The appropriate incorrect or inaccuracy penalty is chargeable on the amount of the original under-deduction by the contractor prior to any relief under Regulation 9(5) being applied in part or in whole.

The behavioural tax geared element of the failure to submit penalty should also be based on the original amount of under-deduction prior to any relief under Regulation 9(5) being applied in part or in whole.