Register and maintain subcontractor: gross payment or payment under deduction: management take-overs
|CISR43600||Action guide contents|
Where a management take-over (or buy-out) leads to the creation of a new company, the new company should not be allowed to use ‘inherited turnover’ in making its application for gross payment status. It may be possible for the new business to use the ‘transferred receipts test’ to satisfy the turnover test conditions. Regulation 29(2) allows the turnover accrued by one business to be taken into account when dealing with a CIS application for a successor business. Regulation 29(2)(e) allows the use of the turnover earned by the transferor business in the qualifying period to be used by the successor business. See CISR44190. A condition of this test is that the previous owner would have been able to pass the compliance test at the date of transfer had this been applied.
Where a company continues to trade under the same company registration number and UTR after a management buy-out and there is clear evidence of corporate continuity there can be no objection to the company continuing to hold its existing CIS payment status subject to the annual Scheduled Review (CISR49000). This is because in terms of operation of the turnover test, there is no essential difference whether a company changes one or all of its directors, except for the effect of the ‘relevant person’ factor.
The critical test for CIS purposes is whether the ‘buy-out’ and any associated transfer of shares represents a change of control and if so whether the new ownership poses a compliance risk sufficient to require you to make a direction under S64(5) to look through the company at the new directors/shareholders compliance records. See CISR46110 for more details on making S64(5) directions. Where non-compliance of the new directors or shareholders is found, you may request an ad-hoc TTQT (CISR43140) for the company, but you may need to identify the failures of the new director(s) or shareholder(s) manually.