Construction industry cases: construction industry cases: in-year repayments to subcontractors
Under SA a subcontractor is entitled to receive credit for CIS deductions
- After the end of the tax year in which the deductions were made
- Following receipt of the SA return
However, a subcontractor who is an individual and a sole trader or in partnership may also be entitled to have deductions repaid in-year once the accounting period, which determines the profit for the year, has ended. This applies to businesses that are continuing or have ceased and is subject to certain conditions being met under the statutory authority of Regulation 17 SI2005/2045. See CISR75030 in the Construction Industry Scheme Reform (CISR) manual for more information.
Regulation 17 SI2005/2045 defines the basis on which a repayment is calculated. This takes account of profits chargeable for the whole of that year and allowances due up to the date the application for repayment is made.
A request for an in-year repayment must be made on the form CIS40, or CIS41 where the request is in respect of deductions attributable to a partnership. An in-year repayment from a partner can only be allowed where all the other members of the partnership sign a statement of consent.
A claim should be refused if form CIS40 (or CIS41) has not been used. Where appropriate, assistance should be provided to help the taxpayer calculate the repayment.
Partners should be advised to ask their agent to calculate their share of the profit where they are represented or, where they are unrepresented, invited to ask for help from their office with processing responsibility. Where help is required the case should be submitted to a Higher Officer to arrive at the share of taxable profit.
When considering a claim for an in-year repayment you should examine all aspects of the subcontractor’s tax affairs to ensure that they are up to date. If any doubt exists about the correctness of the details supplied, repayment should be refused and the taxpayer advised that the request for repayment will be considered
- After the end of the year of deduction
- Following receipt of the SA return
Note: Whilst there is no right of appeal against HMRC refusal to make an in-year repayment, refusal should only be made where there are strong grounds for doing so. More information can be found at CISR75050 in the Construction Industry Scheme Reform (CISR) manual.
If the subcontractor income has ceased, an in-year repayment can be claimed. The claim must be made on form CIS40 (or CIS41 where the claim is in respect of deductions attributable to a partnership). More information can be found at CISR75030 in the Construction Industry Scheme Reform (CISR) manual.
Where the taxpayer has ceased self-employment and has taken up employment (including change of status) the maximum allowances should normally be given against the PAYE source. If the taxpayer requests repayment you should
- Allocate a proportion of the allowances against the CIS income related to the length of time in self-employment (for example, if the self-employment ceased on 30 September allocate half the allowances against the CIS income) and repay on that basis
- Notify the PAYE source of the balance of allowances (PAYE managers should ensure that the appropriate coding is issued as soon as possible, using a Week1 / Month1 basis if appropriate)
Other in-year repayment claims
Existing procedures at CISR72630 in the Construction Industry Scheme Reform (CISR) manual will continue to apply when dealing with a request for an in-year repayment where the subcontractor suffers
- A CIS deduction at the incorrect rate
- A CIS deduction made in error
In cases of permanent cessation (that is death or emigration) detailed advice on the action to take is provided in section ‘Permanent cessation’ (SAM90000 onwards).
Set-offs and repayments
CIS deductions cannot be credited against payments on account, but in-year repayments can. Where an in-year repayment is agreed, the repayment may be used to set against an outstanding liability, including a payment on account.
Note: SA legislation does not allow for payments on account to be reduced other than on an equal basis (Section 59A (4) TMA).
Making a repayment / set-off
Where an in-year repayment is claimed SA function CREATE FREESTANDING CREDIT will be used where a credit is to be entered on the SA record. Following the use of this function a credit will be created on the SA record which will be available for repayment or allocation against an SA charge.
More detailed advice on creating a freestanding credit is provided in section ‘Issue Repayment’ in business area ‘Repayments’.
Where the over-payment is to be set-off against an existing CODA or other non SA liability you will need to
- Issue SA331 OAS Allocation Form to reallocate the credit shown on the Self Assessment Statement of Account against that liability. If the form does not need to be authorised, send it as an attachment to an e-form to ‘AO Cumbernauld WAM’ and select ‘Sch D(SA)’ work area in the Destination Office Details
- Select the SA Note (Set-off of £xxx made for (year) from the SEES Notes Paster)
The Action Guide on how to verify deductions can be found at CISR73620 in the Construction Industry Scheme Reform (CISR) manual.