CIS Determination under Regulation 13

Advice please

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Long story but briefly Client Sole Trader took on some internal/external building repair work April 2015/16 & 2016/17. No contracts/paperwork drawn up. Never done anything more than odd jobs repairing property for a (large) letting agent instructed by the lettings agent buildings manager. Buildings manager contacts client and suggests that he acts as a contractor for 3 large building renovations on properties that letting agent occupy. Client sees the £'ss, buildings manager suggests that he will be project manager, client will run the site and the "project manager" will value the works and client will invoice the letting agency based on these costings. Client doesn't take any accounting/legal advice other than from the "project manager" who tells him not to worry as if there are any problems he will sort them.

Roll on two years - no CIS scheme operated, no VAT charged, client left seriously out of pocket as the money he received didn't cover all the costs. A final payment was supposed to correct this but 50% through the final job the project manager stepped in, sacked my client and used another team to complete the work. Attempts were made to back date the VAT but the Company rejected this completely. The buildings manager/project manager made redundant. 

Client is then chased by HMRC for VAT and CIS. Appeal sent in July 2017 along with information regarding names addresses and in some cases UTR's & NI numbers as to who was subcontracting. Appeal was sent in July 2017. HMRC issued a determination under Reg 13 of The Income Tax (Construction Industry Scheme) August 2018. In between this the client. his MP and his Doctor were involved in pleading his case.

HMRC are now planning to use legal routes to put a charge on his house. He and his wife are both disabled, both are pensioners he is in his 74 years old, he has mental health issues and they have no cash. The bill is £53k and growing and the house value is £150k. The client can't afford to pay a solicitor, accountant etc. I have previously referred him to debt charities for advice. 

My question is there any route left that my client can use to appeal?

If I'm blunt and stand back and looking at it from the outside.

He didn't take reasonable care - he relied on an employee of the company he did the work for both for advice and direction on the works. He took no independant legal or accounting advice. He had no experience of managing projects, CIS, VAT and stepping into £500k of building works would be considered by a reasonable person was reckless. 

My only slim hope is that the Officer who dealt with the case didn't take into account the directions under Regulation 9(5) even though they were supplied with the details of the sub contractors. It is therefore possible that there is some double taxation. The blocker on that is that Reg9(5) can't be considered if a Dermination under Reg 13 has been issued. 

What does the community think worth a shot? any other suggestions? 




Replies (3)

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By rmillaree
04th May 2023 18:05

Its not clear how or why you client thinks they haev lost out here

hmrc may reduce the cis tax due on missed subby payments If they are satisfied the subbies have declared full income and paid taxes. You would need to get your pleading cap out early in the process and have very proactive subbies if necessary

Ref vat why do they think he has lost out.

Is this not just a reasonable estimates on taxes owed - its not hmrc fault if he owes 50k and cant get it back as subbies wont play ball or if vat is due that cannot be reclaimed from customers.

Note if cis tax is calculated and assessed i would hope hmrc would agree that subcontractors could make reclaim and then forward and additional proceeds to your client - good luck getting subbies to be proactive going backover.

My thoughts are very lay - so shoudl be treated with pinch of salt.

No one is really going to feel sorry for anyone with 150k unmortgaged house that is a real asset that person unfortunately probably needs to man up rather than say they cant aford to pay someone 5k to perhaps save em 50k. I suspect proactive mitigation from seasoned specialist in this area would have been the way to go from the start.

Thanks (1)
Replying to rmillaree:
By DKB-Sheffield
04th May 2023 18:13

On the latter point... I agree. If faced with losing 1/3 of a house, against some form of loan with 1/30 of that house as security... and potentially saving 9/30 in the process... a specialist tax lawyer would be my first port of call!

Thanks (1)
By lesley.barnes
05th May 2023 09:28

Thanks for replying - its a sanity check for me that I've done all I could.

The determination is correct based on amounts paid and subbies that verified as 20% or 30% after the event. All the penalties VAT and CIS have been put aside so the figure is purely CIS that should have been deducted and VAT due.

The client's issue is that he doesn't believe HMRC have done all they can to check whether the subbies have declared the income. The client has asked the question and says he hasn't received an answer. The client has contacted all the subbies and only one was happy to cooperate. The others blocked him on their phones, didn't answer the phone to him and didn't reply to his letters. Which I think gives the answer.

I have no way of checking if HMRC have followed up on the information that was provided before issuing the determination. I was wondering if it is too late to ask the question after the determination and would it get us anywhere?

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