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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: 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. Subsequently, an evidence check is required in order to verify those figures. This check will generally be carried out soon after the application acceptance. Cases will be selected centrally by Knowledge, Analysis and Intelligence (KAI) and a centralised team within Local Compliance will be notified of those cases where the turnover is to be checked.

Typically, the cases for which the evidence check is carried out will be

  • 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.

In addition to this the same centralised team will also carry out a Turnover check following a subcontractor passing through the ‘Scheduled Review’ who passes TTQT, and whose gross payment status is therefore being maintained. This check is carried out to ensure that turnover of £30,000 or more for each ‘relevant person’ is still being achieved within the business.

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?

A monthly list will be passed from KAI to the centralised team of all those new subcontractor applications made within the last month, and also all of the cases that went through the ‘Scheduled review’ within the last month who passed TTQT. Where the check is being carried out following the ‘Scheduled Review’ KAI will also extract all of the payments made to the subcontractor as shown from the contractor’s monthly returns within the last 12 months to establish the level of turnover for the subcontractor.

Form CIS309 will be issued to the applicant for gross payment status for new registrations, and is available from the SEES package entitled ‘Emp Comp & Const Ind’. The form 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 the turnover is being checked following the ‘Scheduled Review’, then the centralised team will use a special template letter which will be issued to the subcontractor with similar wording to the CIS309, once again asking the subcontractor to provide evidence of the turnover achieved within the last twelve months.

Where the centralised team need to check the turnover, they will also carry out a further examination of the subcontractor’s overall compliance. 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 CIS309 or the template letter. If the subcontractor is unwilling to put their evidence through the post, then provided that they make an appointment at the Enquiry Centre of their choice, they will be able to take the evidence into that Enquiry Centre, where they will be given a receipt for the evidence produced. This will then be passed by the Enquiry Centre to the section that requested sight of this.

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 £200,000 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.

Where however no response to the CIS309 or the template letter is received and the applicant has a ‘confirmed’ TTQT result and is already on gross payment status, then you will need to use the function ‘Change TT’ (see CISR43610) to change the subcontractors tax treatment back from gross to net with a 90 day notice period.

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’.

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 section that decided to withdraw gross tax treatment. 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.