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HMRC internal manual

Construction Industry Scheme Reform Manual

Deductions: checking of deductions where contractor’s monthly return not submitted: Action in subcontractor’s processing office

Contractor’s monthly return missing

A contractor’s failure to submit the monthly return is most likely to come to your attention where a subcontractor (individuals and partnerships only) claims an in-year repayment (See CISR75030). Where the contractor’s monthly return is missing for the period when the subcontractor claims that payments and deductions were made, and he has not received a payment and deduction statement (PDS), firstly see CISR73630 for guidance.

Subcontractor’s copy of Payment and Deduction Statement missing

A contractor’s failure to supply a PDS to their subcontractors is normally unlikely to come to your attention until the subcontractor approaches you, possibly seeking a repayment.

Where the subcontractor advises you that one or more payments have been made to them by a contractor who has not given them sufficient PDSs to support the payments, you should firstly follow the guidance at CISR73630.

By initially taking this route, and being firm with subcontractors claiming the above, you should be able to eliminate a number of cases in the early stages where the subcontractor’s second approach to the contractor produces any missing PDSs. However, it is recognised that there will always be some cases where action under CISR73630 does not produce the necessary results and in these circumstances you should follow the additional guidance set out in the paragraphs below.

Year of deduction has not yet ended

  • Advise the subcontractor that the details of the payment and deduction(s) are noted and that the deduction claimed should be entered on their Self-Assessment return for the deduction year (SA Cases), or on the PAYE return form P35 after the end of the year of deduction (for non RTI years), or Employer Payment summary (EPS) returns for RTI years (Company cases).
  • Make an SA or EBS note of the payments made, cost of the materials (if any) and the CIS deduction(s), and the period they relate to and the EOY reference for the contractor

Where an In-Year repayment is being claimed you must ask for evidence of the CIS deductions made by the way of bank statements or invoices, where you are not able to confirm the CIS deductions claimed as shown by the CIS system.

  • If this evidence confirms or partially confirms the claim made then you may allow the CIS deductions up to the amount the evidence now confirms.
  • Send a RIS/CIS referral stencil to RIS in respect of the CIS deductions you have now confirmed from the evidence provided
  • Where the contractor is insolvent instead of issuing a RIS/CIS referral stencil you should make a report to DMB of the CIS deductions you have now allowed to the subcontractor, as set out in CISR74040 

Year of deduction has ended

Any claim made for the CIS deduction(s) will now have to be made on the Self Assessment return for Individuals or partners, or on the PAYE return form P35 for Companies (for non-RTI years) or Employer Payment summary (EPS) returns for RTI years. Once these returns have been captured you should proceed as follows;

Self-Assessment subcontractor

  • Allow credit to the subcontractor for the amount claimed on the Self-Assessment return, unless;

A compliance officer has opened a Section 9A Enquiry into the return for which the claim for the CIS deduction(s) has been made, in which case;

  • the compliance officer may ask the subcontractor to provide Bank statements to confirm the payments made according to the PDSs (or invoices where PDSs were not received)

If the Bank statements coupled with the PDS’s or Invoices confirm the entry made on the Self Assessment return;

  • the compliance officer may allow the claim as made
  • Forward details of the CIS deduction(s) that you have now allowed using the RIS/CIS Referral stencil available on the CIS Intranet site together with the evidence the subcontractor has supplied.
  • Where the contractor is insolvent instead of issuing a RIS/CIS referral stencil you should make a report to DMB of the CIS deductions you have now allowed to the subcontractor, as set out in CISR74040 

If the Bank statements coupled with the PDS’s only partially back up the entry made on the Self Assessment return;

  • the compliance officer should restrict the claim to what can be evidenced by way of Bank statements and PDS’s or Invoices
  • Forward details of the CIS Deduction(s) that you have been able to allow using the RIS/CIS Referral stencil available on the CIS Intranet site together with the evidence the subcontractor has supplied.
  • Where the contractor is insolvent instead of issuing a RIS/CIS referral stencil you should make a report to DMB of the CIS deductions you have been able to allow to the subcontractor, as set out in CISR74040 

Company subcontractor

  • Follow the guidance set out in the PAYE Manual at PAYE53012 (for non RTI years) or PAYE53013 (for RTI years).