Does anyone have the experience of a Contractor failing to deduct CIS, then being investigated by HMRC?
My client (subbie) is not having CIS deducted, and probably should be - the contractor is 'old school'. This is not the first time I have experienced this.
How does any back tax claim from HMRC roll out?
Thanks.
Replies (7)
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Not sure what you are asking?
"How does any back tax claim from HMRC roll out?" Are you saying that the contractor hasn't deducted the CIS and now wants your client to repay the CIS to him or has the contractor asked for proof that your client has already paid the tax through his tax return? What does your client do because you don't seem certain whether he should come under CIS or not?
Contractor responsible
The contractor is the one responsible for determining CIS status and deducting tax as appropriate. As long as your client pays the right amount of tax in the end (through self-assessment as opposed to CIS deduction) then HMRC will have no reason to come after them.
Ermm,
Surely the sub-contractor is registered for self-assessment, has declared the income from the dodgy contractor, and has not claimed a tax credit for a deduction that wasn't made, and so paid the tax via self-assessment instead of at source.
If so, why are you getting overly concerned about the contractor, unless they are your clients, too?
If it helps I had a contractor under investigation
I represented a builder who used sub contractors through an agency. Prior to this he did his own tax returns. He paid the agencies invoices blissfully unaware that he should have verified and deducted 30% from the agency invoices. HMRC pursued the client not the agency for the 30% deductions and fines for not submitting CIS returns.(The agency were not registered for CIS scheme) HMRC said if he could get the agency to provide proof that they had paid tax based on what they had received from the client they would take this into consideration. It came as no shock that the agency went into liquidation shortly afterwards. The client was liable for the 30% deductions and although they gave him a payment plan over 3 years it nearly bankrupted him.
Definitive answer
As long as your client's tax return is correct, and your client has paid the correct tax then HMRC will not, and have no right to do a clawback. It is the contractors issue and has nothing to do with the subcontractor (as long as he hasn't declared CIS suffered when it wasn't).
(And even if HMRC tried to - which they will not, your subbie would pay it to HMRC and then reclaim from HMRC which is a point less exercise).