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HMRC internal manual

Compliance Operational Guidance

From
HM Revenue & Customs
Updated
, see all updates

Supporting Guidance: employer compliance: guidance by subject: construction industry scheme (CIS): scheme overview: CIS - from 6 April 2007 - tax treatment

There are three types of tax treatment within CIS Reform. A contractor will be notified by HMRC of the correct tax treatment to apply to payments to a subcontractor. This will usually be as a result of the verification process (COG910040) but may be as a result of a change in tax treatment (COG910100).

Gross

The contractor may make payments to the subcontractor without any deductions. To successfully register for gross payment the subcontractor must:

  • be registered for CIS

and pass the:

  • Business Test
  • Turnover Test and
  • Compliance Test

More guidance is in the CIS (Reform Manual at CISR43010, CISR43020 and CISR46000).

Payment Under Deduction

The contractor must make a standard deduction (20%) from payments to the subcontractor. To successfully register for payment under deduction a subcontractor must have registered for CIS.

A subcontractor who is registered for payment under deduction may be able to satisfy the conditions of registration for gross payment but prefer to be paid under deduction.

Unmatched

The contractor must make a deduction at the higher rate (30%) from payments to the subcontractor. A subcontractor who is subject to deduction at the higher rate has not been successfully verified. This may be because the:

  • subcontractor is not registered for CIS or
  • contractor has not provided the correct information to verify the subcontractor

The caseworker must

  • confirm that the contractor is applying the correct deduction rate to payments to subcontractors

Where a subcontractor is suffering deductions at the higher rate the caseworker must

  • investigate the reasons why.

The caseworker must

  • bear in mind that the potential for identity fraud is greater where a subcontractor is suffering deductions at the higher rate, particularly if this has continued for some time.