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HMRC internal manual

Construction Industry Scheme Reform Manual

Deductions: credit and repayment: subcontractor entitled to gross payment or standard rate tax deduction has an incorrect deduction made

CISR72600 Action guide contents
   

General

There will be occasions when deductions, higher than the correct rate are made from payments to subcontractors during the year.

This may occur when the subcontractor has already been given gross payment or standard rate tax status by HMRC. Yet when the contractor seeks to verify the subcontractor’s tax status with HMRC before their first payment falls due, HMRC are unable to match the details the contractor has provided with a CIS record for that subcontractor.

This may be because inaccurate details were given to the contractor which was then passed on to HMRC at the time of verification or, the contractor transposed the details when passing them on to HMRC.

HMRC will instruct the contractor to apply the higher rate of deduction to all payments made to the subcontractor, until later verification is possible, which will then be confirmed by the issue of form CIS316(A), Notification of tax treatment change for a subcontractor, to the contractor.

Repayment of excess deductions

Where this happens and the subcontractor makes a claim to HMRC for repayment of the excess deductions, you should arrange for immediate informal repayment, but only where all the following conditions are met

  • the subcontractor was already entitled to be paid gross, or at the standard rate of deduction, at the time the excess deductions were made,
  • the subcontractor must submit the relevant Payment and Deduction Statement (PDS) covering the excess deductions,
  • the corresponding monthly return from the contractor must have been submitted to HMRC. Depending on the date the deduction was made, the return may not be due for up to 6 weeks after this date. In this instance the subcontractor should be advised the claim can not proceed until the return is received,
  • the contractor must have paid over to HMRC the deductions due (from subcontractors of at least the amount of the excess deductions) in respect of the above relevant monthly return. This should be checked on the BROCS system for months up to 5 April 2013 and ETMP from 6 April 2013 (but see below).
  • the PDS must be checked against the monthly return.

There is no need to wait for determination of the liability for the year in which the deduction was made. Such claims should be treated as a priority. See the Action Guide at CISR72630 for the action to take in these cases, particularly in so far as Company subcontractors are concerned.

This is not a formal ‘in-year’ repayment and these rules have no statutory force. It is simply the repayment of excess deductions made from a subcontractor entitled to receive gross payment or, payment net of the standard rate of deduction at the time the payment was made.

Checking whether the deduction has been paid over

Generally, you will not normally be able to see the exact amount paid over in respect of a single subcontractor except where that subcontractor is the only one paid under deduction and there are no PAYE employees. You will therefore need to exercise your judgement when determining if any disputed deductions have been paid over.

If the contractor has several subcontractors paid under deduction and you can see that the contractor’s monthly payment has been made for the month in question and it looks more or less like the monthly payments before it, you can reasonably assume that this particular subcontractor’s deductions have been included.

Of course, if you see that the contractor has paid over either nothing or an amount that is less then the disputed deduction then you may not be satisfied that it has been paid over.

However, you should be aware that a contractor that is a company which itself is a subcontractor paid under deduction can offset these deductions against its PAYE/NICs, Student Loans and CIS liabilities that it is due to pay over to HMRC. You will therefore need to make a judgement on this basis. If the contractor has not paid over enough to account for the deductions at question, is it a limited company paid under deduction as a subcontractor? If it is, then you may decide in the individual circumstances of this case that the subcontractor’s deductions have been accounted for and you may treat this requirement as being satisfied.