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HMRC internal manual

Construction Industry Scheme Reform Manual

Register and maintain subcontractor: turnover test: determining the ‘multiple’ for concerns

CISR44600 Action guide contents
   

For partnerships using the standard turnover test, the threshold is dictated by the number of partners involved. For companies, the threshold is determined by the number of ‘relevant persons’. In each case the individual turnover threshold is multiplied by these numbers.

For a partnership, the multiple is based on

  • those partners who are individuals and,
  • where one or more companies is a partner, the number of ‘relevant persons’ in the company member or members.For a company, the relevant persons are

  • its directors and
  • where the company is ‘close’, (broadly, where it is controlled by five or fewer persons) its other beneficial shareholders (directors and shareholders in close companies are called ‘relevant persons’ in the legislation)Where a person is both a director and a beneficial shareholder that person is only counted once in the calculation, similarly in a mixed partnership where one of the partners in the partnership is also acting as a director or shareholder in a limited company that also acts as a partner in the same partnership that person is again only counted once. Note that the legislation applies to all shareholders regardless of the rights attaching to the share issue.

Where a company has one or more other companies acting as directors, each corporate director is only counted as one relevant person, regardless of the structure of that individual company. See Example 5 below.

The following examples 1 and 2 show how the number of partners in partnership cases should be determined.

Example 1Example of determination of number of partners to be considered in applying the turnover test.

A partnership has 3 partners, 2 of whom are individuals. The remaining partner is a ‘close’ company that has 2 directors and 2 beneficial shareholders other than the directors. There are thus 4 ‘relevant persons’ in the company.

The number of participants remains unchanged throughout the test period. The multiplying factor is therefore 2 individual partners plus 4 ‘relevant persons’ = 6.

The individual turnover threshold in force throughout the test period is £30,000.

The partnership must show net turnover of £180,000 to meet the threshold for any year in the test period.

Example 2Example of determination of number of partners to be considered in applying the turnover test.

A partnership has 3 partners, 2 of whom are individuals. The remaining partner is a ‘close’ company that has 2 directors and 2 beneficial shareholders other than the directors. The company joined the partnership 6 months before the application is submitted. There are thus 4 ‘relevant persons’ in the company.

The multiple applicable to the partnership is therefore 2 individual partners plus 4 company relevant persons = 6.

The individual threshold is £30 000.

The partnership threshold for the 12 months preceding the date of application is 6 x £30,000 = £180,000.

The following examples 3 and 4 show how the number of relevant persons in company cases should be determined.

Example 3Example of determination of relevant persons in a company application.

A company is a ‘close’ company having 2 directors who hold shares and a further 3 beneficial shareholders.

There are no changes in the number of directors and shareholders throughout the test period.

Since there are 5 ‘relevant persons’ the multiplier to be applied is 5. The individual turnover threshold in force throughout the test period is £30,000.

This company must show turnover of £150,000 to meet or exceed the threshold for any year in the test period.

Example 4Example of determination of number of relevant persons in a company application.

A company is a ‘close’ company having 2 directors who hold shares and one other beneficial shareholder at the date of application. Six months before the application was submitted there was a further shareholder who was not also a director. For the first 6 months of the qualifying period there were thus 2 directors and 4 shareholders (including, that is, the directors holding shares).

However, where a person is both director and shareholder, they are only counted once in calculating the multiple. The multiple is therefore 2 directors plus 4 shareholders = 6 minus 2 for the dual director/shareholder adjustment = 4.

The individual turnover threshold in force throughout the test period is £30,000.

This company must show turnover of £120,000 to meet or exceed the threshold for any year in the test period.

Example 5Example of determination of number of relevant persons in a company application.

A company has 3 directors that are ‘relevant persons’ and 1 director that is another corporate body. That makes 4 ‘relevant persons’ in this example. Where a director of a company is another corporate body that company is only counted as one relevant person regardless of how many directors it may have itself.