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HMRC internal manual

Construction Industry Scheme Reform Manual

Register and maintain subcontractor: gross payment or payment under deduction: changing a subcontractor's tax treatment

CISR43600 Action guide contents

A subcontractor’s tax treatment may be:

  • changed from gross to net
  • changed from net to gross

The changes may be as a result of:

  • a request from the subcontractor
  • an appeal by the subcontractor against the tax treatment given
  • a scheduled review by HMRC (see CISR49000)
  • a compliance officer changing the tax treatment if there is evidence of fraud

Whenever a change is made to a subcontractor’s tax treatment under FA04/s66(1), a notification is issued to the subcontractor (form CIS308) advising them of the intention to change their tax treatment.

Before removing gross tax treatment from a subcontractor under FA04/s66(1), because of compliance failures, you must firstly consider whether the subcontractor had a ‘reasonable excuse’ (CISR81020) for the failures identified, the guidance at CISR49000 goes into the action required in more detail.

Where suspected fraud is involved and gross tax treatment is being withdrawn with immediate effect under FA04/s66(3), the subcontractor is not automatically notified. In these cases you will need to manually write to the subcontractor telling them the reason(s) why gross payment status has been withdrawn.

Where gross payment status is withdrawn or HMRC have refused to grant gross payment status, the subcontractor is given 30 days to appeal against this decision. See CISR48000 for more information on how to deal with Tax Treatment appeals.

A subcontractor will not be able to apply to change from net to gross payment if a ‘‘live’’ exclusion period has not ended. An ‘‘exclusion period’’ will begin on the day that gross payment status was removed, and will continue for a twelve month period from this date.