Contractor failed to register under CIS

Contractor failed to register under CIS

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I have had a new client come to see me who has been trading since 2010 and been doing their own tax returns.  They submitted their 2014 tax return showing payments to subcontractors and this has now triggered a compliance check.  HMRC have asked for details of all payments made to subcontractors, copies of their invoices and an explanation as to why he did not operate or deduct CIS.

He has all the invoices and has always paid the subcontractors by cheque/bacs so he has full records.

My question is, is he looking at just penalties for failing to operate CIS correctly or could he be liable for the tax that should have been stopped if he had operated CIS correctly?  Never had a situation like this before, so any advise on how to proceed HMRC regarding this would be appreciated.

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Euan's picture
By Euan MacLennan
14th Oct 2014 11:29

Initially liable for the CIS tax

The basic premise is that the contractor is liable to pay over all the CIS tax which he should have deducted.  However, if he can demonstrate that the sub-contractors have declared the gross income on their own tax returns and paid the tax accordingly, the contractor may not be held liable by a direction under Reg.9(5) of the CIS regulations.  See COG909360.

The first step is to review all the sub-contractor invoices in order to exclude payments for work which is not a construction operation subject to CIS and to exclude the value of materials.

You haven't said what type of contractor your new client is, but it is hard to believe that he is not aware of CIS if he works in the building trade.

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By Jeni
14th Oct 2014 11:41

Thank you, that's very helpful.  They are a bricklaying business and yes I couldn't believe they didn't think about it especially as they have been registered as a subbie so are fully aware of CIS.  I will prepare as you suggested and try and mitigate penalties as much as possible. 

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By claudialowe
14th Oct 2014 11:34

"just" penalties?

The penalties alone are going to be seriously scary for 4 years - £10K+.  Subby tax in comparison could be minor.  Provided that all the subbies have declared their income, then you could argue that the tax has already been collected by HMRC.

 

I would make sure that you get your fees upfront :-)

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