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HMRC internal manual

Construction Industry Scheme Reform Manual

From
HM Revenue & Customs
Updated
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Verify subcontractor: overview: need to re-verify where concern changes

CISR51600 Action guide contents
   

General

Monthly returns will be issued to each registered CIS contractor with a contractor scheme record.

To set up a contractor scheme on CIS the following are necessary

  • a PAYE scheme with an ‘XP’ or ‘PSC’ setting for the contractor on EBS
  • a link between EBS and the CIS system, the link being the existence of the UTR for the business on EBS.

Once a scheme has a ‘PSC’ or ‘XP’ type setting on EBS a CIS contractor record will be automatically created overnight whether or not the UTR is held in EBS. Contractor schemes that do not have UTR entered on EBS will still be created but are know as ‘orphan’ schemes, these ‘orphan’ schemes will have limited CIS functionality largely limited to ‘Correct Return Error’, ‘Update Customer’ and ‘View Customer’.

A new contractor will open a contractor scheme by contacting the New Employers helpline (NESI) with relevant details of the new business. (See PAYE on line manual). NESI will allocate a new PAYE reference, and a new Accounts Office (AO) reference under which any PAYE/Subcontractor payments due are made. NESI will then fax the details to the Area office that deals with that business address. The Employers Section should then complete a form P510 and send it to the SA or COTAX Processing Office to inform them of the EBS reference for the taxpayer.

Once the contractor scheme has been set up the contractor must contact HMRC to verify the existence of a subcontractor CIS record, and payment status details for, the subcontractors to whom they have awarded contracts for work and to whom payments will become due.

Changes in concern type

Where a registered CIS contractor changes the type of their concern, for example where a sole trader or partnership decides to incorporate, you will need to set up a CIS (and COTAX) record with a new UTR. In the case of a new Limited Company or where a sole trader becomes a partnership a new PAYE scheme and EBS reference will need to be allocated, in these cases all of their existing subcontractors will need to be re verified under the new contractor scheme.

In some cases the change will not affect the contractor scheme record, for example where one partner either leaves or joins a partnership of two or more persons, provided that the partnership continues to trade with at least two partners, and one of those partners was a partner in the old partnership. These changes are treated as a continuing business and a new PAYE scheme and EBS reference will not be required. Because the subcontractor verifications are associated with the EBS reference for the contractor scheme, it will still be possible to issue pre-populated contractor returns from the contractor record in these circumstances and re-verification of existing subcontractors will not be necessary.

In other cases there may be a more fundamental change, where for example a continuing construction business is taken over by a completely new owner(s), in this case a new PAYE scheme and EBS reference will need to be allocated. Another example would be if two partners in a partnership each decided to become sole traders with each taking half of the subcontractor workforce with them, then new PAYE and EBS references will be required for both of them. In these cases pre-population of the contractor monthly returns initially received will not be possible and each contractor would need to re-verify their own subcontractors.

It should not be necessary for the contractor to re-verify their subcontractors because of a change in the contractor’s UTR but return exceptions are likely if HMRC is not kept informed of the changes.

Merged schemes

Where a contractor merges one or more contractor schemes with another you will need to contact the Centralised Employers Team, NICEO to arrange for contractor records for the affected cases to include the date of the merger. When this is done and because the subcontractor verifications are associated with the EBS reference for the scheme it will still be possible to issue pre-populated returns to the new contractor record under the ‘merged to’ scheme reference.

It should not be necessary for the contractor to re-verify their subcontractors because of a merger of two EBS scheme references, as these should automatically transfer across to the ‘merged to’ contractor scheme, but return exceptions are likely if HMRC is not kept informed of the changes.

This process may take up to seven days before CIS is displaying the correct information with the verifications from the old contractor scheme being transferred over to the ‘merged to’ contractor scheme.

Take-overs

Where a concern is taken over by another together with outstanding contracts and workforce (subcontractors), and the contractor scheme continues to be operated as before the take-over, it will not be necessary for the new concern to re-verify those subcontractors.

It will be necessary to contact the Centralised Employers Team, NICEO and arrange for the EBS scheme reference to be transferred to the EBS record with the CIS interest. It should not be necessary for the new concern to re-verify its subcontractors because of the take-over but return exceptions are likely if HMRC is not kept informed of the changes.

If however, following the take-over, a new Contractor scheme has been opened. Then the new owners will need to re-verify all of their subcontractors under the new contractor scheme reference as these will not be transferred across.