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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 from gross to net

CISR43600 Action guide contents

A subcontractor’s tax treatment may be changed from gross to net:

  • by a Higher officer during an examination of a taxpayer’s compliance record
  • by a Higher officer as part of an examination of the turnover test figures
  • as a result of an unsuccessful appeal by the subcontractor against the tax treatment change
  • by a compliance officer where there is evidence of fraud.
  • Any changes made to the subcontractor’s tax treatment must be recorded on the “contact page” with the name and PID number of the officer making the change and the reasons for the change.

Tax treatment changed as a result of a scheduled review

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.

The legislation at FA04/s66(2) states that where gross payment registration is cancelled, there must be a ‘prescribed period’ of 90 days from the date of issue of the notice to the effective date of cancellation. The notice (CIS308 or manual notice) must provide the subcontractor with the reasons for the cancellation and must also tell them that they will be registered for ‘Net’ payment status.

Tax treatment changed where there is evidence of fraud

An officer of HM Revenue & Customs may at any time make a determination under FA04/s66(3) cancelling a person’s registration for gross payment if they have reasonable grounds to suspect that the person -

  • was registered for gross payment on the basis of false information
  • has fraudulently made an incorrect return or provided incorrect information whether as a contractor or a subcontractor.
  • has knowingly failed to comply (whether as a contractor or subcontractor) with the CIS provisions.

Where a determination is made under FA04/s66(3) for the reasons detailed above the cancellation takes effect immediately.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

(This content has been withheld because of exemptions in the Freedom of Information Act 2000) CISR97090(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

Where gross tax treatment is withdrawn with immediate effect you must manually write to the subcontractor to tell them that their tax treatment is being changed from gross to net, the date from which the change will take effect, and reasons why gross tax treatment is being withdrawn, as no output is automatically issued by CISR to the subcontractor following the use of function [Change TT] in these circumstances.


A subcontractor can appeal against the notice (CIS308) withdrawing gross payment status and this must be made to HMRC within 30 days of the notice. If the Decision Maker decides not to uphold the appeal, the subcontractor has the right to ask for an internal review of the decision, or to notify the appeal to the tribunal.

Any appeal made should be handled by the section that withdrew the gross tax treatment. However if the subcontractor later requests an internal review this will be handled by someone outside of the direct management chain of the Decision Maker. If the subcontractor later appeals to the tribunal, the appeal papers will be requested by the Appeals Unit who will be responsible for presenting the appeal before the tribunal.

See CISR48000 for more information on how to deal with Tax Treatment appeals.