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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 - claims under regulation 9(3) - action to be taken

COG909360 explains the conditions to be satisfied for a direction under Reg 9(5) in relation to a claim under Reg 9(3) to be made.

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).

Where during the course of a compliance check it is discovered that a contractor has failed to make a CIS deduction from a subcontractor, you should in all cases seek an explanation for the failure from the contractor (COG905275).

It is for the contractor to demonstrate clear and strong evidence that the criteria for meeting Condition A have been fully met.

It is essential in all cases therefore to ask the contractor as soon as any under-deduction is identified all relevant questions to establish why the contractor might subsequently believe that the criteria in Condition A have been fully met.

The criteria for meeting Condition A are that the contractor satisfies an officer of HM Revenue and Customs that

  • they took reasonable care to comply with Section 61 of the Act and these Regulations; and

(i) the failure to deduct the excess was due to an error made in good faith; or

(ii) they held a genuine belief that Section 61 of the Act did not apply to the payment.

It is the contractor’s responsibility to comply with the Scheme’s provisions. This means that the contractor should have ascertained what a contractor’s obligations are prior to making a Section 61 payment.

Many claims are based on the contractor not knowing that CIS applied (Section 61) to the payment made to a subcontractor and it is vital that the caseworker asks the contractor why he did not know. It is not regarded at Tribunal that ignorance of the legislation constitutes reasonable care.

The contractor should also be asked how he came to the decision not to make the deduction.

In all cases where an under-deduction has been identified, questions must include asking the contractor to explain what, if any, HMRC guidance was consulted by the contractor prior to making a Section 61 payment, such as CIS340 - A guide to contractors and subcontractors, accessing HMRC website (Employer/CIS) or whether any direct contact was made to a HMRC help line or HMRC generally.

The contractor should be asked to produce any evidence he can to support any claim that direct contact was made. This must include precise details of who was contacted and when together with details of any telephone number from which contact with HMRC was made. This would enable you to check whether a customer contact record exists to confirm the contractor’s claim.

If the contractor cannot provide this information, the claim that contact was made should not be accepted and you should advise the contractor of this.

You should form a view based on the information and explanations offered.

If your view is that you are not satisfied that a claim under Reg 9(3) would be successful, you should advise the contractor to this effect. You should also advise the contractor that if he does not agree with your view he should submit a written claim to you setting out why he believes the claim should be accepted.

If your view is that the claim may be successful, you should advise the contractor that you will refer the claim for formal consideration and a notice of decision will be issued. You should not advise the contractor that the claim will be accepted.

Advice

When considering claims that reasonable care was taken and that Condition A of Regulation 9(3) has been met, the Construction Industry Scheme Functional Lead Team is available to provide any advice and assist you in forming your view prior to advising the contractor.

A decision to refuse a claim under Reg 9(3) is an appealable decision by virtue of Reg 9(7) and unless HMRC can demonstrate that it based its decision on all of the available information and explanations offered by the contractor, it is possible the appeal will succeed.

Where the contractor does not agree your view you should make a referral on the Reg 9 referral stencil to the Construction Industry Scheme Functional Lead Team via your manager following the guidance at COG909090.

Where your view is that the criteria at Condition A have been met you should make a referral on the Reg 9 referral stencil to the Construction Industry Scheme Functional Lead Team via your manager following the guidance at COG909090.

The Construction Industry Functional Lead Team will consider the claim, prepare sign and issue any appropriate notices of decision.

The papers will be retained by the Construction Industry Functional Lead Team until the appeal period has expired unless you have a need to deal with other aspects of the compliance check in which case the papers will be referred back to you.

Appeals

The Construction Industry Functional Lead Team as the decision maker will deal with any appeal under Regulation 9(7).

You should immediately acknowledge any appeal that is allowed by Regulation 9(7) on receipt and forward it to the Construction Industry Functional Lead Team to deal with.

A contractor should appeal against the refusal notice -

  • by notice to an officer of HM Revenue and Customs
  • within 30 days of the refusal notice
  • specifying the grounds of the appeal.

For guidance on appeals see the Appeals, Reviews and Tribunals Guide (ARTG).