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Are they obligated to repay undeducted CIS from 2013/2014?

Are they obligated to repay undeducted CIS from...

I have a client (company A) who has been issued an invoice (from company B) for £3,000 relating to undeducted CIS in the 2013/2014 Tax Year. The invoice has been generated due to a HMRC enquiry into the tax affairs of company B which revealed that they had underpaid CIS to the value of £10,000. Company B is seeking to obtain this money by raising invoices to all the suppliers affected.

 My client is not registered for the Gross payment scheme however was paid Gross for their invoices. This assumes that company B did not verify their contractors at this time and no CIS statements were received.

This overpayment by company B was not picked up by my client’s accountant (previous) when preparing their year-end accounts.

Both companies are limited and operate PAYE and CIS schemes.

Is my client legally obligated to pay this invoice?

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05th Mar 2016 11:15

No legal obligation

It is the legal responsibility of the contractor B to:

establish whether the work done by the sub-contractor A falls within CIS and, if so,to verify the sub-contractor and deduct CIS tax at the appropriate rate.

HMRC can pursue contractor B for payment of any CIS tax which it failed to deduct.  It is not something which B has any right to "invoice" to A.

However, sub-contractor A will have presumably paid corporation tax on the gross income of £15,000 and if contractor B makes such a claim to HMRC, to be confirmed by subcontractor A, HMRC may be prepared to accept that as there has been no loss of (tax) revenue, they will not pursue contractor B for payment of the non-deducted CIS tax.

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