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HMRC internal manual

Construction Industry Scheme Reform Manual

The Scheme: secondary legislation: regulation 9

This regulation sets out HMRC’s powers, where conditions A or B are met, to recover deductions from the subcontractor where insufficient deductions have been made by the contractor: to be read in conjunction with FA04/S61.

Definitions are provided at SI2005/2045 reg 9(2). of ‘the deductible amount’; ‘the amount actually deducted’; and ‘the excess’.

Condition A requires that the contractor must satisfy HMRC that all reasonable steps were taken to comply with the legislation and that any failure to deduct the correct amount came about as a result of an error made in good faith or a belief that the legislation did not apply to the payment: SI2005/2045 reg 9(3)(a) and (b).

Condition B requires that HMRC must be satisfied that the subcontractor receiving the payment under FA04/S61 was not chargeable to income or corporation tax in respect of those payments or that they have returned the payment on either a personal or company tax return and paid over any monies due: SI2005/2045 reg 9(4)(a) (i) and (ii). and

  • the contractor asks HMRC to make a direction under (5): SI2005/2045 reg 9(4)(b).

HMRC can make a direction that the contractor does not have to pay the excess payment due: SI2005/2045 reg 9(5).

If condition A at SI2005/2045 reg 9(3) is not met, HMRC can refuse to make a direction under SI2005/2045 reg 9(5) but they must give notice to the contractor showing the grounds for the refusal and the date of issue of the refusal notice: SI2005/2045 reg 9(6)(a) and (b).

SI2005/2045 reg 9(7). allows the contractor to appeal against a refusal notice. In making an appeal the contractor must notify HMRC of the grounds for appeal within 30 days of the refusal notice. The contractor’s grounds for appeal must be that the contractor met the conditions in (3): SI2005/2045 reg 9(8).

If the tribunal determines that a refusal notice should not have been issued they can direct HMRC to make a determination under SI2005/2045 reg 9(5): SI2005/2045 reg 9(9).

If a contractor makes a deduction from a subcontractor payment but does not pay the sum over to HMRC, it will be treated as having been paid when calculating the subcontractor’s liability: SI2005/2045 reg 9(10).