Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Construction Industry Scheme Reform Manual

From
HM Revenue & Customs
Updated
, see all updates

Register and maintain subcontractor: gross payment or payment under deduction: System ‘Ad-hoc’ Tax treatment Qualification Test (TTQT)

CISR43600 Action guide contents
   

From 6t h April 2008 CIS recognises where four consecutive monthly contractors returns have been not been received by the due date from a contractor who also acts as a subcontractor and holds gross payment status, and where the Scheduled Review (see CISR49000) is not yet due. CIS will initiate a process which will be run once a month to identify these and run a system ‘ad-hoc’ TTQT to highlight these and any other failures within the twelve month ‘qualifying period’, and remove gross payment status from the subcontractor.

A contractor record will not be examined for a system ‘ad-hoc’ TTQT until at least one month has passed since the fourth consecutive monthly return penalty has been issued; this is to take into account the possibility of any appeal being made by the contractor against the monthly return penalties issued

The system ‘ad-hoc’ TTQT will be triggered where CIS identifies four late consecutive contractor returns within the period, which will be the current month minus 5 to the current month minus 2. The date of the system ‘ad hoc’ TTQT will be on the 7t h day of each calendar month.

Example 1

June 2010 return Penalty issued 29th June 2010
   
July 2010 return Penalty issued 29th July 2010
August 2010 return Penalty issued 29th August 2010
September 2010 return Penalty issued 29th September 2010
October 2010 return Penalty issued 29th October 2010
(Due date for the October 2010 return is the 19th October 2010)  

On the 7th November 2010 CIS will look at the contractor returns for June 2010 to September 2010, the penalty for the October 2010 contractors return will not be included as the 30 day appeal period following the issue of the penalty will not yet have expired.

Where a first penalty has been issued in respect of four consecutive contractor returns the system ‘ad-hoc’ TTQT will run for the subcontractor except where any of the following circumstances are present:

  • The subcontractor, as a contractor, has been ‘Inactive’ in any of the months to be assessed.
  • The subcontractor is due to change to net tax treatment already in the next 90 days.
  • There is an unresolved appeal against the withdrawal of gross payment tax treatment.
  • There is an unresolved tax treatment appeal for other registering partners who would be a ‘test participant in a TTQT.
  • The subcontractor or registered partner (who would be a test participant in a TTQT) is deceased.
  • The subcontractor is a Trust.
  • The system ‘ad-hoc’ run date is earlier than the earliest date on which a Compliance Test can be run. (This is to prevent the system ‘ad-hoc’ TTQT covering the same ‘qualifying period’ that has already been subject to an appeal upheld in favour of the subcontractor).

The way that the system ‘ad-hoc’ TTQT will work is that CIS will look for the first penalty that has been issued in respect consecutive contractor’s returns, and will count each first penalty issued in respect of that return. The system ‘ad-hoc’ TTQT will however ignore the following:

  • Where at the time of the system ‘ad-hoc’ TTQT, there is a penalty inhibition in respect of any first penalty relating to a particular monthly return. Where however the penalty inhibition is later lifted, and the penalty still stands then this contractor’s monthly return will be counted provided that the return falls within the current month minus 5.
  • Where any of the penalties issued in respect of any of the four late returns under examination have been vacated.
  • Where there is an open, or upheld penalty appeal in respect of a particular contractor’s monthly return that falls within the current month minus 5.

Example 2

June 2010 return Return received after the due date
   
July 2010 return Return received after the due date
August 2010 return Return received after the due date
September 2010 return Inactivity set
October 2010 return Return received after the due date
November 2010 return Return received after the due date
December 2010 return Return received after the due date
January 2011 return Return received after the due date

The run of late contractor returns from June 2010 was interrupted by the setting of Inactivity signal for the September 2010 contractor return, and so a new run commences from the October 2010 contractor return.

The system ‘ad-hoc’ TTQT will also work in the same way that the normal ‘ad-hoc’ TTQT operates, so that:

  • Where the subcontractor type is that of an ‘Unincorporated body’ the TTQT will always come out as ‘Incomplete’. The system ‘ad-hoc’ TTQT will need to be completed manually (see CISR43690 on how to do this).
  • Where the subcontractor type is that of a partnership, the system ‘ad-hoc’ TTQT will check the partnership and all the partners of the partnership including the registering partner(s).
  • Where the subcontractor type is that of a company, the system ‘ad-hoc’ TTQT will check the company only and not the directors or shareholders relating to that company.

Finally once the system ‘ad-hoc’ TTQT has run and the ‘Unconfirmed’ TTQT result has been confirmed as a ‘fail’ (after exploring whether the subcontractor has a ‘reasonable excuse’ for the failures identified), the subcontractor will be notified by CIS308 regarding the loss of their gross tax treatment, and the date for this change will be 90 days after the date of issue of the CIS308.