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HMRC internal manual

Construction Industry Scheme Reform Manual

Deductions: Company CIS deductions claimed against PAYE liability but payments recorded against another subcontractor’s record(s) - Initial action by the Centralised Employers Team (NICEO)

CISR77000 Information contents
   

If, when reviewing the Post Capture Work List you encounter a company that is seeking to set off some CIS deductions against its EPS (or P35, for years up to and including 2012-13) liability, but the payments appear to be recorded on CIS under an earlier sole-trader or partner record, this may be because the sole-trader or partner has

  • not told the contractor about the existence of the limited company, and/or
  • not registered the company for CIS.

Consequently, it is likely in these circumstances that the contract between the sole-trader or partnership and the contractor remained unchanged throughout. In order to resolve the issue, you will need to approach the company to obtain an explanation of why this has happened.

Therefore, in the first instance, you should

  • write to the company asking why it believes the contractor issued payment and deduction statements using the sole-trader or partnership details, and
  • request sight of written evidence, for example, copies of bank statements, showing that the company actually received the payments in question,
  • BF the case for 28 days for a response, and
  • take action in accordance with the following paragraphs depending on the response you get to your enquiry.

Company says contractor was unaware of the existence of the company (or no response to your enquiry)

If you get no response, or the company tells you the situation arose because its director failed to tell the contractor about the limited company, then you should

  • tell the company that the CIS deductions on the final EPS (or, form P35 for years up to and including 2012-13) cannot be allowed and will be reduced to nil accordingly, and
  • advise the company that it must make good any resulting underpayment on the final EPS (or, form P35 for years up to and including 2012-13) without further delay.

This is because, if the contractor was unaware of the existence of the company then, clearly, no contract existed between it and the contractor. As such, the contractor will have made the payments direct to the sole-trader or partnership with whom they had originally contracted for the work in question.

Credit for any deductions will have to be dealt with on submission of the Self-Assessment return by the sole-trader or partnership, at the appropriate time. You do not need to contact the SA Processing Office about this, but you should make a note of your actions on employer notes within EBS.

Company claims contractor knew the contract was with the company but is unable to produce evidence to support this

If the company is unable to show any documentary evidence that the contractor made the payments to it, then you will need to telephone the director to ask why the payments were made to a non-business account (to determine the legal entity entitled to claim the CIS). The director may explain that there were valid reasons as to why the payments were made to the non-business account. You may accept a verbal explanation that you (or a technical officer, in cases of difficulty, as below) find to be reasonable. These may include (but are not limited to);

  • the director was prevented from having a business account due to previous poor credit
  • the bank delayed the opening of the business account

If the director cannot provide any reasonable explanation as to why a non-business account was used, (for example, they failed to tell the contractors that they incorporated to a Ltd Company and they did not register the company for CIS) you should

  • tell the company that the CIS deductions on the final EPS (or, form P35 for years up to and including 2012-13) cannot be allowed and will be reduced accordingly, and
  • advise the company that it must make good any resulting underpayment on the final EPS (or, form P35 for years up to and including 2012-13) without further delay.

Credit for any deductions will have to be dealt with on submission of the Self-Assessment return, by the sole-trader or partnership, at the appropriate time. You do not need to contact the SA Processing Office about this, but you should make a note of the actions taken on employer notes within EBS.

If the director can provide a reasonable explanation as to why a non-business account was used, accept the situation and follow the guidance below.

Company claims contractor knew the contract was with the company and is able to produce evidence to support this

If the company was able to produce copies of bank statements showing receipt of the payments corresponding to the sums shown on the disputed payment and deduction statements, you may accept the situation.

  • in all such cases, you should then review the claimants Self Assessment return and click on the View Calculation button (the green calculator icon). Review this screen to see if there is a field entitled CIS25 Vouchers. (This content has been withheld because of exemptions in the Freedom of Information Act 2000)
  • if there is no field for CIS 25 Vouchers (or the return is yet to be filed) then you can accept that none of the disputed deductions recorded against the CIS record of the sole-trader or partner(s) have already been allowed against the SA liability of the sole-trader or any partners.

You should now

  • check that the company has registered for CIS as a subcontractor. If they have not then ask the company’s COTAX processing office to issue form CIS305 to company to complete so that registration can take place.
  • enter a note on Self Assessment advising

    • actions taken
    • amount of the deductions allowed against the final EPS (or form P35 for the years up to and including 2012-13) liability for the company, and
    • year to which these deductions relate.

If there is a field confirming a claim for CIS under CIS25 Vouchers then it is possible the CIS deductions that you have confirmed as being correct to the company’s PAYE liability have already been set against the SA liability of the sole-trader or partner(s).

  • consideration of possible duplicate claims (final EPS/P35 for years up to and including 2012-13 and Self Assessment)
  • consider the date that the sole-trader or partner(s) ended their self employment and formed a limited company.
  • review Scheme Start Date information in the Employer Scheme History page on EBS and
  • the Maintain Sources screen and Sources and the Trade Details sub-screens confirming the Trade End Date in Self Assessment.
  • review CISR using the sole-trader or partner’s UTR to confirm how much is recorded on that system

You should now consider how much CIS tax is allowable overall from the evidence you hold.

  • if it is clear that the amount claimed on Self Assessment (the CIS25 Vouchers value) relates to the period prior to incorporation and is not also being claimed by the limited company then agree the claim.
  • if it is clear that any of the amounts claimed on Self Assessment are also being claimed by the limited company then do not agree the claim. Instead, write to the director (for reasons of confidentiality and data security - see CISR77010) and advise that credit appears to have already been given for the deductions now being claimed. Request that they give consideration to amending their Self Assessment returns or amending their claims for CIS deductions suffered through a final EPS (or, P35 for years up to and including 2012-13)
  • set a BF period of 4 weeks and review the response accordingly. If the director does not reply then send a referral to RIS to review the claim. Do not make any repayments of the disputed amounts until you are advised by RIS.
  • if there is any doubt as to the claim then submit the case to a technical officer for review.
  • In all cases where a claim is agreed, enter a note on Self Assessment advising

    • actions taken
    • claim allowed through the company’s final EPS or P35 for years up to and including 2012-13
    • year to which the deductions relate

see CISR77620 for examples of the above

Cases of difficulty for Technical Officers

A company may claim that the deductions it has set off against its final EPS or P35 for years up to and including 2012-13 relate to payments made to the company despite the payment and deduction statements (and the contractor’s returns) being prepared by the contractor in the name and details of the sole-trader or partnership. If such a claim cannot be backed up by documentary evidence, the guidance above should be followed. An acceptable verbal declaration of the situation is sufficient, a written declaration is not required to confirm why payments were made to a non-business account (the bank statements remain proof of payment).