Deductions: credit and repayment: subcontractor entitled to gross payment or standard rate deduction has an incorrect deduction made
This action guide explains the steps you should take where a subcontractor entitled to gross payment or standard rate deduction has had an incorrect deduction made and claims repayment of all or part of that excess deduction.
Where the subcontractor is
- an individual or partner, this action should be taken by the SA Processing Office and not by the End of Year section for the contractor that made the payment to the subcontractor
- a company, this action should be taken by the End of Year section acting for the subcontractor in its role as employer/contractor. This is so that you can be sure that the company subcontractor does not claim the deduction again later on the End of Year return form P35 (for non RTI years), or on the Employer Payment Summary (EPS) returns (for RTI years).
On receipt of a request for repayment of deductions allegedly made in error, you should
- ask the subcontractor for the payment and deduction statement (PDS) relating to the payment made under excess deduction.
The subcontractor may be entitled to gross payment or standard rate deduction status for only a part of the month covered by the PDS. For example, the gross payment status commenced at the end of June and the PDS covers payments for the complete month to 5 July. You should therefore ask for the date and amount of each payment covered by the PDS
- explain to the subcontractor that any payments made under deduction outside the period of gross payment or standard rate payment status cannot be the subject of immediate repayment.
For an Individual or Partner subcontractor these amounts will need to be set against the tax and Class 4 National Insurance liability for the accounting period in which the deductions were made, or for a company subcontractor against the PAYE/NIC’s/CIS they are due to pay to HMRC
- check the subcontractor’s current tax treatment and tax treatment history details within View CIS Customer under ‘Registration Details’ at CISR18090 to confirm that the subcontractor was entitled to be paid gross or at the standard rate of deduction, at the time the excess deductions were made
- go to the subcontractor’s ‘Payment Details’ window within View CIS Customer and check the PDS to see that the payment and deduction is shown. (See CISR73030 for more information on checking PDSs)
- check that the contractor appears to have paid over the deduction in question.
You may not be able to identify the individual deduction but where the contractor’s monthly payment has been made for the period covering the disputed amount, you may assume that the deduction has been paid over. Bear in mind, also, that the contractor may be a limited company that is being paid under deduction itself and off-setting the deductions against its PAYE monthly liabilities. Where this is the case, you may regard the disputed deduction as having been properly accounted for
- arrange for prompt repayment of the excess deductions made from all payments during the period of incorrect deduction satisfying these checks.
To do this for an Individual or Partner subcontractor you will need to create a Free-Standing credit in Self Assessment (SA) using the Effective date of payment (EDP) see the Self Assessment Manual (SAM110000) under the business area ‘Repayments’ for guidance about this. For a company subcontractor, the End of Year section will need to make a Manual Repayment by sending a Payable Order request form (PORF) to DMB.