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HMRC internal manual

Compliance Operational Guidance

Supporting Guidance: employer compliance: guidance by subject: construction industry scheme (CIS): regulation 13 income tax (construction industry scheme) regulations 2005 - background

Regulation 13 is used mainly where

  • a contractor has failed to make deductions under the CIS and
  • no direction has been made under Regulation 9(5) - in relation to claims under Regulation 9(3), or Regulation 9(4) - that the contractor is not liable to pay the amounts under-deducted.

Regulation 13 determinations may be used in cases where

  • a contractor disputes liability or
  • attempts to agree a contract settlement have failed.

Further guidance is available in the Construction Industry Reform Manual (CISR) aboutwhen it may be appropriate to issue Regulation 13 determinations at CISR83010 and CISR82060 (failure to submit monthly returns).

The legislation provides that where

  • there is a dispute between a contractor and a subcontractor regarding

    • whether a payment is made under a construction contract, or
    • the amount, if any, deductible by the contractor from a payment to the subcontractor, or
  • there is reason to believe that the amount a contractor is liable to pay to the collector is greater than the amount, if any, paid by the contractor, or
  • it is considered necessary in all circumstances

then a determination can be made under Regulation 13(2) of the amount, using best judgment, the contractor is liable to pay under the Regulations.

The amount determined as shown in the notice is due and payable 14 days after the determination is made.

A determination can be appealed by the contractor.

Action by Caseworker

Actions regarding claims for directions under Regulation 9(5) must be dealt with prior to the issue of a Regulation 13(2) determination. COG909400 explains what these actions are.

If during the course of your compliance check you discover that any of the above apply, you must issue a Regulation 13(2) determination to resolve the matter. COG909400

When preparing to issue determination(s) full consideration should be given to Regulation 13(4). This provides that a determination under this regulation may -

  • cover the amount payable by the contractor under section 61 of the Act (or S559 of ICTA 1988 prior to 06-04-07) for any one or more tax periods in a tax year, and
  • extend to the whole of that amount, or to such part of it as is payable in respect of -

    • a class or classes of subcontractors specified in the notice of determination (without naming the individual subcontractors), or
    • one or more named subcontractors specified in the notice.

For any failures or disputes arising from the new scheme you may avoid unnecessary appeals if the determination notice lists each tax period (month) where it is considered a failure occurred.

Need to issue an immediate Regulation 13(2) determination

If, during the course of your compliance check, your opinion is that

  • the contractor made insufficient deductions from a subcontractor, and
  • there is likely to be a loss of tax to the Crown

then you must advise the contractor to make good the deficiency by immedtiately issuing Regulation 13(2) determinations.

In particular you must also consider this action in cases where you discover or suspect that

  • the contractor intends to dispose of assets
  • the contractor intends to become non-resident
  • an individual contractor or a partner intends to apply for bankruptcy, or a company intends to go into liquidation
  • an individual contractor or partner may be about to go into prision.

In these circumstances you do not need to send the warning letter as advised in COG909400 and CISR82030.

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Action by Manager

Under Regulation 13(3) a determination must not include any amount in respect of which a direction under Regulation 9(5) has been given.

This means that for that each case where the issue of a determination is considered appropriate, all claims for a direction under Regulation 9(5) received from a contractor under either

  • Regulation 9(3) ‘Condition A’ or
  • Regulation 9(4) Condition B

must first be considered before authorising issue of the determination (COG909400).

Managers should approve the issue of Regulation 13 determinations on a case by case basis and must make sure full consideration is given to Regulations 9(3) and (4).

Managers should also provide support to the CI Caseworker if the contractor appeals the determination(s).

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Regulation 13(5) provides that a determination made under paragraph 13(2) ‘shall be due and payable 14 days after the determination is made’. However any appeal has to be made in writing specifying the grounds of the appeal within 30 days (S31 TMA 1970).

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

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Where there is evidence of a liability to a penalty you should

  • wait 30 days from the issue of the determinations
  • obtain confirmation of whether an appeal has been received
  • then if no appeal has been received commence formal action to raise penalties COG914175.

In cases where an appeal is received you should

  • commence formal action to raise penalties COG914175 
  • write to the employer to advise that this is being done.