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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: changing tax treatment from gross to net following compliance failures by the subcontractor

CISR43000 Information contents
   

Note; Before taking action to remove gross payment status from a subcontractor under FA04/s66(1) you must firstly consider whether the subcontractor may have had a ‘reasonable excuse’ for the failures identified (see CISR49030).

This action guide tells you how to change a subcontractor’s tax treatment from gross to net following an examination by HMRC, or where compliance failures have been identified for the subcontractor.

  • From the [CIS Main Menu] select the relevant subcontractor registration.
  • Then select ‘Manage TT’.
  • Request an ‘Information only’ TTQT, this will identify any compliance failures up to the date of your request for change of tax treatment which may give you further support for the action you are about to take. You will not need to take this step, if you merely wish to change the tax treatment of the subcontractor, merely due to the cessation of the subcontractor’s trade (CISR41070 refers).
  • From [Menu] select ‘Change TT’.
  • This will take you to the ‘Change Subcontractors Tax Treatment’ window and will show the current tax treatment at the top of the window
  • Remember to update the “contact page” with your name and PID number and the reason for the changes.

Under the title bar ‘Change Tax treatment to Net’ there are two radio buttons, these are

Change to Net - Notice given

Change to Net - Immediate

The window automatically defaults to Change to Net - Notice given, and gives the subcontractor a 90 day notice period before their gross payment status is withdrawn.

However there are circumstances where you would wish to change their tax treatment to net immediately, for instance where there was evidence of fraud (see CISR43040), this facility however can only be used following liaison with the CIS Technical Team (see CISR97090) and CI (Criminal Investigations). You will then need to:

  • Select ‘Change to Net - Immediate’

Whichever of the radio buttons is selected you will then need to use the drop down menu alongside ‘Reason for Change’ to make the selection that matches the circumstances of the particular case. The available options are:

  1. Upheld appeal
  2. False registration information
  3. Auth - Processing manager
  4. Auth - Compliance manager
  5. Auth - Central Compliance
  6. Auth - Civil Investigation
  • Select [Change to Net]

The payment status for the subcontractor will now be changed to net with 90 days notice or effective immediately depending on which radio button has been selected, and the contractors that the subcontractor is associated with will be notified of the change of tax treatment by the issue of letters CIS316 (the ‘contact history’ note of the issue of the CIS316 will only appear on the contractor record, and will not appear on the ‘contact history’ for the subcontractor).

You must also manually write to the subcontractor telling them of the fact that their tax treatment is being changed from gross to net, the date from which the change will take effect, and the 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].