Usual story, subby has been invoicing Contractor showing CIS deduction due on his invoice, contractor has been paying invoices (after deducting CIS) but kept saying CIS statement would follow in due course.
Contractor now gone bust and has paid no CIS over and claimed to HMRC it has never traded !
HMRC are refusing to allow the CIS deduction !
No usually when this happens if you submit the invoices and the bank statements to back the trail up HMRC allow the CIS - this is a new course of action for HMRC in my experience
Any one else have similar issues nd or any advice ?
Thanks
Replies (3)
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No advice i'm afraid. I'm just surprised that they can follow this route if the contractor paid the invoices. I'm sure that they would include the income in the turnover of the subcontractor.
The bad debt is HMRC's not the subcontractors
Where it can be proven that payment has been made by x to y after deduction of CIS tax, the debt (for the tax) becomes HMRC rather than the subcontractor. x owes the tax to HMRC. y can claim credit for the tax that x has deducted.
Rather like an employee of an insolvent employer - it is unheard of for HMRC to say that PAYE/NIC deducted doesn't count for credit against an employee's tax liability.
From a practical viewpoint to protect the subcontractor's position get evidence of the facts:
Copies of sales invoices (addressed to WHO?)Record of payments received (that should be 20% less than the invoices) - ideally copies of cheques received or bank statements direct credits in each case showing the payer's name
Subject to the above the tax that was factually deducted is owed to HMRC by the contractor and stands as a credit on the subcontractor's tax account.
Subject to evidence, there appears to be a potential fraud perpetrated by the contractor against HMRC and/or the subcontractor - pretending not to trade when actually trading, pretending to deduct tax then denying deducting it. I hope that a MLR report is being made by the subcontractors accountant.
Agree with DMGbus
As long as the subcontractor can show that he invoiced one amount and received another, you're fine.
Had this before, there was no problem. If they don't agree, keep at it - they're wrong.
The cheek of these people - your subcontractor didn't ask to be in their discriminatory tax deduction scheme.