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HMRC internal manual

Construction Industry Scheme Reform Manual

Register and maintain subcontractor: turnover test: transferred receipts test


CISR44600 Action guide contents


Where an existing construction business is sold as a going concern by its proprietor (the ‘transferor’), the new owner will usually need to register under CIS, if the new owner wishes to apply for gross payment status they will need to pass the statutory tests, including the turnover test.

SI2005/2045 reg 29(2)(e) and (3), allows turnover earned by the business while in the hands of the previous owner during the qualifying period to be used by the new owner in support of their application. The new owner may only pass the turnover test on this basis where:

  • the new owner is a company (so this transfer arrangement is not open to an individual or a partnership who acquires a construction business)
  • the turnover transferred, taken together with turnover earned since the change of ownership, exceeds the turnover test threshold applicable to the new owner
  • the old owner would have been able to pass the compliance test at the date of transfer had this been applied

This last requirement aims to counter exploitation of this arrangement by non-compliant owners who transfer their businesses to a company successor, for example, in an attempt to retain gross payment status.

Typical transfer situations where this arrangement might be beneficial to an applicant are:

  • a retiring sole trader transfers the business to a new company
  • a dissolving partnership transfers its business to a successor company
  • a company being liquidated sells its business to another company (but bear in mind that if that company had tax defaults, it would not now qualify for gross payment status and turnover transfer would not therefore be available to the successor)
  • a management buy-out where the existing company is dissolved, the business being carried on by a newly-incorporated successor company
  • re-organisation of a company group where the construction business of one member is transferred to another company member that is not the direct subsidiary of a parent holding gross payment status

If the transferred receipts are accepted for the turnover test they should be treated as though directly earned by the applicant when applying the rules of the Standard or Alternative tests.