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HMRC internal manual

Construction Industry Scheme Reform Manual

HM Revenue & Customs
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Monthly return: temporarily inactive contractors: introduction

CISR67600 Action guide contents

Periods of temporary inactivity

In the past we have referred to periods of inactivity as a period of dormancy. However, the term to use from 6 April 2007 is ‘inactivity’. Inactivity may happen from time to time, a contract might finish or the contractor uses their PAYE workforce for a while, the contractor does not stop being a contractor for good, just on a temporary basis.

It is important to note here though, that inactivity applies at individual scheme level. It is, for example, quite possible for a contractor with more than one scheme to be inactive in one and active in another.

The period over which inactivity can be set is six months. This is the statutory requirement of SI2005/2045 reg. 4(11) of the secondary legislation. There is, however, one exception to this - see ‘Contractor scheme cessations’ below.

Clearly a monthly return will not be needed whilst subcontractors are not being engaged and paid on a self-employed basis. But one will be needed again at some point in the future. For a while then, the contractor enters a ‘period of inactivity’ and they are able to ask for a period of ‘Inactivity’ to be set on the contractor scheme record for the next six months.

Question 8 on page 4 of the CIS300 return form says:

  • If you do not anticipate paying subcontractors in the next six months, put ‘X’ in the box below.

It then goes on to say:

  • This means we will not send you a monthly return unnecessarily. But, you must let us know when you start to pay subcontractors again by phoning the CIS helpline or writing to your HMRC office.

When the details from the return are logged and captured, the CIS computer system will check to make sure that the contractor’s returns are up to date both in the current and previous year. If they are, a period of ‘inactivity’ will be set on the CIS record, if we hear nothing from the contractor for the next six months, we will not issue another return until the 7t h period following the notification of inactivity.

For example:

  • A contractor sends us a return for the period 6t h May 2009 to 5t h June 2009. Box 8 is completed to the effect that it is not anticipated that any subcontractors will be paid in the next six months. The contractor’s returns for the year to 5t h April 2009 and month 1 of 2009/2010 are up to date. So, when the return for the period to 5t h June 2009 is logged and captured, an inactivity signal is set. We hear nothing from the contractor so the next return automatically issued is that for the period between 6t h December 2009 and 5t h January 2010. The system will issue an automatic reminder for this month if one is needed.

Important note 1

If the request for a period of inactivity has been made on the CIS300 and this return has been scanned in Netherton, CIS will automatically set a period of 6 months ‘Inactivity’ starting with the next return period following the contractor return on which the request was made, even if there are contractor returns outstanding in respect of previous months.

We cannot legally refuse to accept a request for a period of inactivity on the grounds that CIS Monthly returns are outstanding and whilst encouraging the contractor to submit any outstanding returns, you must set the inactivity signal. There are more detailed instructions on how to do this in the Action Guides at CISR67620 toCISR67640.

Contractor Scheme cessations

SI2005/2045 reg 4(11) tells us that the default period over which a period of inactivity runs is six months. However, there is one exception, this is when a scheme type changes early in the tax year from a CIS to a non-CIS scheme.

There are three scheme types

  • P - the type of scheme is appropriate for all organisations and businesses making payments to employees, pensioners and office holders,
  • PSC - this type of scheme is appropriate when a contractor in the construction industry makes payments to a subcontractor and, as an employer they have employees liable to PAYE deductions,
  • XP - this type of scheme is appropriate when a contractor in the construction industry makes payments to a subcontractor relating to construction operations

Schemes under CIS will be either PSC or XP.

Users responsible for maintaining schemes will make any necessary changes on EBS and from 27t h November 2009 these changes may now be made during the year rather than waiting until the tax year end. If a change in the scheme type from PSC or XP to P becomes necessary (because, for example, a contractor ceases as such but remains an employer), the user will access EBS to change the scheme type and this action will now automatically set a period of inactivity on the CISR record following the date of change and up until the following 5t h April. The CISR record will now show a status of “No longer on CIS” and no further monthly returns (CIS300) will be generated.

For example - a contractor notifies us in early April 2009 that they have sold off the contracting side of a business. They will remain as an employer but will no longer make any payments to subcontractors in respect of work done under construction operations.

Nil returns

Note that once we’ve set a period of temporary inactivity, a contractor no longer has an obligation to make a nil return for each of the income tax months the period of temporary inactivity covers. SI2005/2045 reg. 4(11) refers.

Note that a contractor attempting to make a nil return by phone whilst the relevant scheme is noted as temporarily inactive will effectively reactivate the scheme. This means that they will start receiving monthly returns again, which they will be legally obliged to complete.

Users need to be aware of this so that the appropriate advice can be given at the time of the call.

Periods of more than six months

If a contractor realises that the initial period of temporary inactivity is likely to last more than six months, they must tell us. Again we’ll check that returns are up to date in the current and previous years (a forgone conclusion if this is an extension to an existing period of inactivity), and we will then set a new period of inactivity on the system for a further six months. This will be effective from the date of contact.

In theory, periods of temporary inactivity can be extended indefinitely. However, if you have any reason to suspect continual requests to extend a period of inactivity, you should either

  • Consider whether the scheme needs to close. (You will need to carry out this functionality within EBS), or
  • Send a RIS Referral stencil (See the CIS Intranet) reporting your suspicions and the periods for which ‘Inactivity’ has so far been requested.

See the action guide at CISR67610 for more information on periods of temporary inactivity. This includes:

  • What to do when previous returns are not up to date
  • How an inactive period is set on a CIS record
  • How an inactive period is set when a declaration of temporary inactivity is made during a telephone call (either to CC or locally) or by correspondence
  • What to do when a contractor tells us they have started paying subcontractors again before the period of temporary inactivity finishes
  • What to do when a contractor tells us that a period of temporary inactivity is likely to last more than the initial six months
  • What to do when a contractor tells us that a period of temporary inactivity is likely to last less than six months
  • What to do when you get a return for a future period which falls inside a period of temporary inactivity
  • What to do when inactivity is requested on a return and returns for future periods have already been submitted

The logging and capture of contractor returns is covered in detail at CISR63000 onwards.