Non deduction of CIS tax

Non deduction of CIS tax

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During the PAYE compliance inspection, the officer picked up a case where the client was paying to the subcontractor on account without deducting any tax(made 4 payments ). At this point the CIS status of the subcontractor was net.

At the end of the project they settled the account with the subcontractor and paid the difference. By this time the CIS status was gross and therefore the client did not deduct any tax.

Inspector now picked this issue and raised the assessment for additional tax and penalty.

Few questions

1          Can this process be justified in any way i.e. payment on account without deducting tax & settling the bill at the end. This is a one-off case where the payment status was changed during the project.  I know per CIS 340 you are supposed to deduct tax as and when the payment is made.

2          In his calculation the officer grossed up the payment and then deducted 20% i.e. payments x 20/80. Is it correct?

3          Inspector is not giving any credit for material because the subcontractor didn’t differentiate the material and labour element on his invoice. Because of the CIS status we never bothered to ask for it as well? Can't even go back to the same company because the company is now liquidated. Can we appeal on this ground that the subcontractor quote showed the estimated amount of material and therefore we can only be penalised on for the labour element and not on all the payments.

Thanks

Asim

  

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Euan's picture
By Euan MacLennan
30th Nov 2011 11:31

A few answers
No - you cannot justify the failure to deduct CIS tax correctly from each and every payment made to a sub-contractor.Harsh and, I believe, not correct.  The payment was clearly made gross.  If you had operated CIS correctly, you would have deducted tax at 20% from the payment, not at 20/80.  There is no loss to the Revenue as the sub-contractor cannot now recover the CIS tax because it no longer exists.It is actually the responsibility of the contractor to assess the cost of materials, which may differ from the value charged by the sub-contractor if he is applying a mark-up, so you would be right to base your assessment on the estimate from the sub-contractor in the absence of any split on his invoices.

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