Following the introduction of the new CIS, HM Revenue & Customs (HMRC) has started reviewing the gross payment status of CIS subcontractors on a 12 month rolling basis. Such reviews have apparently already led to HMRC withdrawing the gross payment status of some 8,000 subcontractors with potentially disastrous cash flow implications for the subcontractors involved.
If a subcontractor is selected for review, HMRC will assess all aspects of the subcontractor's tax compliance (excluding VAT liabilities) during the prior 12 months and, in particular, will look to ensure that:
- the requirements of the CIS are being met;
- all tax returns and payments have been made on time;
- any information requested by HMRC has been provided;
- each individual partner within a partnership is compliant;
- companies are observing company law and filing accounts and annual returns on time; and
- any company controlled by a subcontractor is also compliant.
When considering whether a subcontractor is compliant, HMRC has issued a "white list" of compliance failures that will be disregarded. If a failure is not on that list then HMRC will notify the non-compliant subcontractor of their loss of gross payment status - effective 90 days from the notice – and allow the subcontractor 30 days to lodge an appeal.
If the subcontractor does not appeal, or the appeal is unsuccessful, the subcontractor cannot re-apply for gross payment status for one year from the date of withdrawal. HMRC will also contact all of the contractors who recently engaged the subcontractor and inform them that, from the effective date, payments to the subcontractor must be made under deduction of tax.
In these difficult economic times, ensuring that you comply with your tax payment and administrative obligations may not be as high a priority as normal. It should be remembered, however, that a failure to comply with these obligations could lead to a withdrawal of gross payment status and cause greater cash flow difficulties.
It is vital, therefore, that all subcontractors review their procedures and seek advice in the event they receive a loss of status notice from HMRC, or if they anticipate difficulty complying with CIS or other tax obligations.
Disclaimer
The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.
