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HMRC internal manual

Construction Industry Scheme Reform Manual

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HM Revenue & Customs
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Register and maintain subcontractor: Gross payment or payment under deduction: Ad-hoc Tax treatment Qualification Test (TTQT)

CISR43600 Action guide contents
   

From 15 October 2007, there is a facility to run a ‘‘one off’’ or what is called an ‘‘ad-hoc’’ Tax Treatment Qualification Test (TTQT). This can be requested where you felt that the subcontractor was not meeting their compliance obligations and could include the following situations, note however that this list is not exhaustive;

  • The subcontractor has compliance failures but the next scheduled review date of the subcontractor’s Tax treatment is not for sometime yet.
  • The subcontractor has been declared bankrupt or insolvent
  • A partner in a partnership has been refused gross payment status following TTQT being run, but there are other partners within the same partnership already holding gross payment status. An ‘‘ad-hoc’’ TTQT may now be requested in respect of those other partners in advance of the normal scheduled review date.
  • A partner in a partnership has been refused gross payment status following TTQT being run. That same partner also has another Registration (for example, as a sole trader) that also holds gross payment status. An ‘‘ad-hoc’’ TTQT may now be requested in respect of the other registration for which gross payment status is now held in advance of the normal scheduled review date.
  • An individual or company subcontractor loses gross payment status following an annual scheduled review of their Tax Treatment. Where the individual or company is also a member of a partnership holding gross payment status, an ‘‘ad-hoc’’ TTQT may now be requested in respect of the partnership registration for which gross payment status is also held in advance of the normal scheduled review date.
  • Where the subcontractor also acts as a contractor, and they have submitted monthly returns CIS300 late on four or more occasions within the last 12 months.
  • Where the subcontractor also acts as a contractor, and they have failed to submit one monthly return CIS300 at all within the last 12 months. The return in question would be where a period of inactivity had not been set, where a penalty inhibition was also not set, and where no penalty appeal in respect of that monthly return had been made by the contractor.

Where the result of the ‘‘ad-hoc’’ TTQT results is a ‘‘failure’’ this will be generated on to an ‘Unconfirmed’ TTQT worklist. Before finalising the TTQT you will need to follow the procedure set out at CISR49600 first to establish if the subcontractor had a ‘reasonable excuse’ for the failures identified.

Once the ‘unconfirmed’ TTQT is finalised CISR will notify the subcontractor of their loss of gross payment status by the issue of a CIS308 with a 90 day notice period of when this change of tax treatment will take effect.

An ‘‘ad-hoc’’ TTQT cannot be run however where any of the following circumstances are present

* There is an outstanding TTQT request (except where an ''information only'' TTQT has been requested, see [CISR43160](https://www.gov.uk/hmrc-internal-manuals/construction-industry-scheme-reform/cisr43160)).
* There is an ''unconfirmed'' TTQT result present.
* There is an outstanding Tax Treatment appeal open for the subcontractor, or for another partner in the same partnership.
* Where a Tax Treatment appeal has been recently closed, and the Tax Treatment is already scheduled to change from Gross to Net payment.
* A Previous TTQT failure resulted in a Tax Treatment appeal being received, which was subsequently upheld. Requesting a TTQT now could cause the period for the original TTQT failure to be re-examined.
* The subcontractor does not have Gross payment status already.
* There is less than 10 days until the next annual TTQT scheduled review is due, or the scheduled review date is in the past.
* There is less than 90 days following the date that an open Tax Treatment Appeal was settled for the subcontractor, or for another partner in the same partnership.
* Where the subcontractor is deceased.

Where CISR identifies any of these circumstances a warning message will be displayed to the operator indicating that the request for the ‘‘Ad-hoc’’ TTQT cannot proceed.

Where the tax treatment has been recently changed following a previous TTQT, then CISR will display a warning to the user advising that the tax treatment was recently changed following a request made by the subcontractor, however CISR will allow the user to proceed with the ‘‘ad hoc’’ TTQT request.

Another warning message will also display where you ask for an ‘‘ad-hoc’’ TTQT, but by making this request, will result in a Tax Treatment failure being tested again when that failure has already been tested before on a previous TTQT. In this case CISR will not allow the user to proceed with the ‘‘ad-hoc’’ TTQT request.

Instead a Manual TTQT (See CISR43120) will need to be carried out, and if that results in a ‘‘failure’’ then the function ‘‘Change TT’’ (See CISR43630) should be used to change the tax treatment of the subcontractor, but you must do this only after you have followed the procedure set out at CISR49600 first, to establish if the subcontractor had a ‘reasonable excuse’ for the failures identified.

When you have requested an ‘‘ad-hoc’’ TTQT that results in a ‘‘pass’’, the date of the next tax treatment scheduled review will not alter where gross payment status has been retained by the subcontractor. This is so even where the normal tax treatment scheduled review date is only a short time in the future.

Where you request an ‘‘ad-hoc’’ TTQT and that compliance test results in a confirmed ‘‘failure’’ (after exploring whether the subcontractor has a ‘reasonable excuse’ for the failures identified), if following a successful appeal made by the subcontractor gross payment status is restored, the date of the next tax treatment scheduled review (See CISR49000) will change to 12 months after the date of the last failure reason CISR identified (See Example 1 below). Where however this would result in a next scheduled review date that is less than 90 days in the future or is in the past then CISR will automatically re-set the next scheduled review date for 90 days into the future from the date the appeal was determined.

Example 1

A subcontractor registers for gross payment status on 12 April 2008; the date set for the next tax treatment scheduled review is 12 March 2009. An ‘‘ad-hoc’’ TTQT is run on 12 February 2009 and results in a confirmed TTQT fail, the most recent failure reason being the late payment of the Self-Assessment Balancing charge for 2007/2008 due on 31 January 2009. The subcontractor makes an appeal on the grounds that they had a ‘‘reasonable excuse’’ and the appeal is upheld by a tribunal. Instead of the next scheduled review date being 12 February 2010, it is now set for 31 January 2010, being the 12 month anniversary of the most recent failure reason.

Example 2

A subcontractor registers for gross payment status on 12 April 2008; the date set for the next tax treatment scheduled review is 12 March 2009. An ‘‘ad-hoc’’ TTQT is requested on 12 February 2009 and results in a pass, the only failure being found is the late payment (by one day) of the Self-Assessment Balancing charge for 2007/2008 due on 31 January 2009. Instead of the next tax treatment scheduled review date now being 12 January 2010, the next tax treatment scheduled review date of 12 March 2009 remains undisturbed.