CIS Dilemma

CIS Dilemma

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A dormant  company client started trading again (property development) and it made four payments to  a main contractor, without verifying their tax status and it has not yet filed the 4 CIS returns. We now run the CIS function for our client, we have since verified the status of the main contractor, who happens to be gross payment status which is fine going forward. However if we now file the 4 outstanding CIS returns, they will attract a 30% tax deduction because at the time when payment was made, the main contractor was 'unverified' ...... so 30% tax, which is around £100k. So not only is our client facing around £1,000 in late filing penalties once those missing returns are filed, he must now deduct  tax from the main contractor that he should have done four months ago. The main contractor will be pretty irate as it will impact on his cash flow through no fault of his own.  I suppose he could offset it against his own company's PAYE/NIC liability,  but he doesn't deserve the hassle. The annoying thing is, the whole exercise is tax neutral anyway, nobody benefits.  Have any readers come across a similar scenario? If so is there a way around it, say by approaching HMRC and saying  "look....innocent error............nobody gained .......no loss to HMRC......... all is well going forward......now lets all go home happy."

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By tonyh
09th Aug 2014 22:08

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Is any of main contractors work  "non construction" e.g. planning if so you maybe able to reduce the amount subject to deduction. What about materials.

At this level I cannot see it having much impact on main contractors cash flow as he must have a big work force so it  will be set off very quickly.

However, it is worth a phone call to hmrc and ask for an inspector. You are unlikely to speak to such an eminent person immediately but they will ring you back within a day or two and hopefully they will see the sense of your argument.Don't get involved with any of the help desk people even if they know what they are doing they do not have the authority to over ride the computer.

 

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