Register and maintain subcontractor: turnover test: post- acceptance evidence checks
|CISR44600||Action guide contents|
An application for gross payment status may initially be admitted on the basis of the construction turnover and related materials figures entered on the form/online application. Subsequently, an evidence check is required in order to verify those figures. Compliance Officers can request evidence of turnover at any time, in relation to an ongoing compliance review or a specific Post Acceptance Check. Those with the greater risk are as follows:
- new businesses that rely on inherited turnover ‘inherited’ or ‘transferred’ from another business to pass the turnover test (see CISR44190 and CISR44200)
- relatively new businesses that have now generated sufficient construction turnover to pass the turnover test,
- construction businesses of some longstanding whose construction turnover has recently reached the qualifying level
- established businesses that have recently ventured into the construction industry for the first time.
- Businesses that have declared a turnover in excess of £30,000 (or the appropriate figure relating to the number of relevant persons) but CISR records show the subcontractor income in the qualifying period does not exceed this figure.
What is checked?
The aim of the check is to confirm that entries on the application form affecting the turnover test were accurate, or if incorrect, that any error did not give rise to a ‘pass’ where a ‘fail’ would have been the correct outcome.
The following must be checked:
- the ‘Gross amount of payments (not including VAT)’ entry, that is, the applicant’s gross construction turnover
- the ‘Cost of materials (not including VAT)’ entry, that is, the cost of materials used in carrying out the construction operations for which the contract payments have been made
- the turnover test ‘multiple’ used is correct in relation to the make-up of the business where this is a partnership or a company.
Guidance for each of these can be found in the following topics
See (CISR44050) regarding gross turnover figures
See (CISR44060) regarding related materials figures
See (CISR44070) regarding number of partners/relevant persons
How is this checked?
If the case is selected under the CIS Gross Payment Post Acceptance Check project, issue an opening letter similar to CIS309 from the Project Document in the E-SIP.
The letter asks the applicant to provide evidence to confirm the turnover shown on the application form and can include the following:
- bank statements
- paid invoices
- paid cheques
- books and accounts of the business
Where it is necessary to check the turnover, the Compliance Officer should also consider a further examination of the subcontractor’s overall compliance, if compliance risks ae apparent. In the case of a company subcontractor this will also extend to making directions under Section 64(5)/FA04 where appropriate.
The applicant is given a period of 21 days in which to respond to the opening letter.
If the evidence of turnover is produced and you are satisfied that the evidence backs up turnover of £30,000 for each ‘relevant person’ or £100,000 where the alternative turnover test is being used (see CISR44170), you need take no further action as the applicant will already be on gross payment status. Notify the subcontractor that you are satisfied with the evidence and they are entitled to retain gross payment status subject to ongoing compliance.
Where however no response to the opening letter is received and the applicant has a ‘confirmed’ TTQT pass and is already on gross payment status, then you will need to follow the guidance at COG914260.
You must also manually write to the subcontractor (on a CIS308) 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’.
If the applicant subsequently provides the turnover evidence after the CIS308 has been issued (advising the applicant that their gross tax treatment is to be withdrawn), then you should ask the applicant to appeal in writing against that decision.
Any appeal made against the withdrawal of gross payment status should be handled by the officer that decided to withdraw gross tax treatment (the decision maker). However if the subcontractor subsequently requests an internal review of the decision this will be handled by someone outside of the direct management chain of the Decision Maker. If the subcontractor then makes an appeal direct to the Tribunal, the appeal papers will be requested by the Appeals Unit who will be responsible for presenting the appeal before the Tribunal. The appeal should be worked in accordance with the instructions starting at CISR48000.