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HMRC internal manual

Construction Industry Scheme Reform Manual

Register and maintain subcontractor: gross payment or payment under deduction: sole trader or partnership becoming a company

CISR43600 Action guide contents

Where a sole trader or partnership becomes a company the new business must register for CIS and apply for gross payment status before it can be paid without CIS deductions being made.

Where the CIS Registration Team at NICEO receives an application involving a change in the type of concern where a previously registered sole trader or partnership have now formed a company, these applications will be referred (with a covering memo) to the CIS Centre, Hull, to arrange for action to be taken on Self Assessment (SA) to ensure that the SA record is updated, see the Self Assessment Manual (SAM) at SAM101000. Once the SA and COTAX records have been updated the CIS Centre Hull should then continue to process the CIS Registration application from the company for either net or gross payment status, and these should not be referred back to the CIS Registration Team at NICEO.

The new company may use the ‘Inherited Receipts’ test based on previous turnover to satisfy the turnover test. There must be true continuity if the new concern is to rely on ‘inherited’ turnover from a previous period of trading. Put simply this means the same people running the same type of business.

Turnover test

The applicant’s type of concern at the date of application is company, and so the company rules apply.

The applicant should use form CIS305 for the turnover test and should supply a covering letter explaining how the ‘relevant persons’ figure is made up.

The company is able to use the net construction turnover earned by the sole trader or partnership in the qualifying period to satisfy the requirements of the turnover test. SeeCISR44190for more information on ‘Inherited receipts’.

Business and compliance tests

The applicant must also pass both the business, and compliance tests before gross payment status is granted. The business test is run at the same time as the turnover test is completed; the compliance test is only undertaken when both the turnover test and business test have been passed.

The type of concern at the time of the new application is a company; therefore the compliance test will apply to each ‘relevant person’ (director or shareholder).