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HMRC internal manual

Construction Industry Scheme Reform Manual

Nil Returns: Overview: nil returns

Section 70(1) Finance Act 2004 (FA04) gives HMRC the power to make regulations requiring persons who make payments under construction contracts to make a return relating to such payments.

The regulations are at Regulation 4 of the Income Tax (Construction Industry Scheme) Regulations 2005 which requires a person (a contractor) to make a monthly return to HMRC of all payments made to subcontractors in the tax month and the deductions made from those payments.

The return must be received by HMRC no later than 14 days after the end of every tax month. A contractor who has not made any payments to subcontractors in the month is not required to submit a nil return though they are required to let HMRC know that no return is due.

If a contractor does not expect to make any further payments to subcontractors under construction contracts for the following 6 months they can notify HMRC and we will set the temporary inactivity signal. During this period the contractor will not need to submit any nil returns or notify us that no returns are due.

A contractor that has made payments to subcontractors and subsequently fails to submit a return by the due date will be liable to a penalty. See COG914290, COG914295 and CH62300.

Circumstances when a person may no longer be someone who makes payments under construction contracts

Section 70 FA04 provides that the regulations only apply to persons who make payments under construction contracts. So, in certain circumstances, we may accept that a person was no longer someone who was required to make a return under Regulation 4.

Some contractors generally work alone and only occasionally have to engage one or more subcontractors to help them complete either an unusually large contract or some other specialist work. After the work is completed, if we are satisfied they no longer had a requirement or a continuing expectation to engage subcontractors, we may accept that they were no longer someone who made payments under construction contracts.

Each case should be considered on its own facts. However the First-tier Tribunal in two CIS penalty appeals [Bushell v HMRC TC827 [2010] UKFTT 577 (TC) and Yuriy Koleychuk & HMRC TC1918 [2011] UKFTT01461 (TC) decided that, in the circumstances of those cases, the appellants ceased to be persons who made payments under construction contracts after a period of two months following the last payment they had made to subcontractors. The attached appendix provides extracts from each appeal.

Although FTT decisions do not create a legal precedent, HMRC are content for the approach applied by the FTT in those two appeals to be applied in other cases with similar facts and circumstances. However, it is not the length of time between payments which is the deciding factor but whether the normal working arrangements of the person mean that they are someone who will continually make payments under construction contracts or if they only occasionally have to do so to help complete an unusually large contract or specialist work.


An individual who normally works alone only has to employ subcontractors to help complete an unusually large contract or undertake specialist work such as gas fitting or electrical work. They must register as a contractor and operate CIS in respect of the payments made to subcontractors. In strictness, the regulations then require them to submit a return or notify HMRC of any period of inactivity. However, if after the work has been completed, there is no ongoing requirement or expectation to use subcontractors on the relevant contract or any other contract / work on hand, we can accept that the person was no longer someone who makes payments under construction contracts.

If, or when, the person needs to engage subcontractors again they will once more be a person who makes payments under construction contracts. They should tell HMRC immediately and will be required to operate CIS and submit monthly returns.

The above circumstances can be distinguished from an individual whose normal business routinely requires them to employ subcontractors. In these circumstances the individual would continue to be a person who makes payments to subcontractors and they will be required to submit a return (or tell us one is not due) if they do not notify HMRC that they will not be making payments to subcontractors for a period of up to 6 months.


Extracts from Yuriy Koleychuk

  1. …… May 2009, two months had passed since Mr Koleychuk engaged another person to do construction work in his stead. By then the problems with his back were history and he was, we believe, working on his own again. By then the arrangements which gave rise to his having made payments had clearly ceased and he could not properly be described as a person who makes payments under construction contracts. His activity was providing his own labour in controlled circumstances for another, and did not encompass arranging for others to work for him.

  2. From May onwards we do not believe that Mr Koleychuk could properly be described as such a person.

  3. As a result in our judgement from May onwards Mr Koleychuk could not be, and was not, required by the regulations to make any returns. As a result his failure to make them was not a failure to which regulation 4(13) could apply, and no penalty arose under section 98A in respect of any such failure

Extracts from Bushell

The return for Period 8 (November 2007).

  1. This was the first month in which Mr Bushell made no CIS payments. He could be made liable to make a return under Regulation 4 only if he was a person who “makes” payments. On the evidence before us it seemed to us that in November 2007 Mr Bushell could fairly be described as someone who makes payments. He had made a payment in the preceding month and although he had returned to his previous way of working that we find that the evidence was insufficient to show that he had dispelled the penumbra of making payments: it was not shown that there was no residual arrangement to make payments to the subcontractors he used for the large August jobs - for example payments due for work done but withheld for a cautionary period or payments which would arise in dealing with snags in the work done.

The return for Period 9 (December 2007).

  1. We find that in this period Mr Bushell had not taken on any job, and was not subject to any arrangement to take on any job, which could involve a subcontractor. The only arrangement in this period by virtue of which Mr Bushell could possibly make a payment to a subcontractor was that relating to the large August job in circumstances similar to those described in paragraph 71 above. Although his last payment was some 5 to 8 weeks previously, the evidence before us was, on balance, insufficient to persuade us that the arrangement in relation to those jobs had ceased. Accordingly we find that in relation to December 2007 Mr Bushell was a person who “makes payments”.

The return for Period 10 (January 2008).

  1. At this stage it was over two months since Mr Bushell had made his last payment. We find that at this stage he had no arrangements in hand for engaging subcontractors or for undertaking work which would or might involve using subcontractors or making payments to them. We find that by this time it was unlikely that he was subject to any arrangement arising from the large August jobs which involved making a payment to a subcontractor. He was not therefore a person who “makes payments”. He could not therefore be obliged by the Regulations to deliver a nil return.

  2. As a result there was no failure to comply with the Regulations and no penalty arises.

  3. If we are wrong about this then, for the reasons set out in relation to Period 8 and Period 9 above, the penalties would have been limited to £400 in total because of the reasonable excuse which extended from April 2008 to January 2009.