We've recently had a PAYE visit for a client and they've identified that our contractor client has paid hotel bills for subcontractors (as well as for employees) and are seeking to claim the underpaid 20% CIS tax on the hotel bills relating to subcontractors going back 4 years.
Apparently the cost of the hotel bills paid by the contractor should have been added to the gross value of the subbies invoices and CIS tax calculated on the total. Hotels are block booked for employees and subcontractors in advance of the contract (normally before it is known which members of staff or identities of subcontractors are known).
They have quoted FA04/s61.
I've looked at this and it seems they may be correct although I can't find any other guidance.
Should HMRC be correct, we then also have the problem of identifying how much of the hotel bills for the last 4 years relate to subcontractors and how much to employees given that sometimes subcontractors and employees would share bookings and even rooms.
Also, had the contractor deducted the cis tax in the first place then (a) he would have been no worse off (net to subby would be less, tax to HMRC more) and (b) the subby would have had a larger CIS tax deduction. Assuming that the subcontrator has correctly filed a tax return then surely there is some element of double taxation here if the contractor has to pay backdated CIS tax.
Although this purely relates to hotel bills in our client's case, if HMRC are correct, then this would seemingly apply to fuel or any other 'non-material' expenses paid direct by the contractor on behalf of a subcontractor.
Just wondering if anyone has had experience of this and whether there is any argument based on the possible 'double taxation' if the subcontractors have all filed their tax returns based on the CIS tax statements originally provided to them.
Replies (7)
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Is the contract between the hotel and the subcontractor ?
Or the hotel and the contractor ?
You've not paid the subcontractor cash to reimburse an expense nor have you satisfied a liability of the subcontractor. Ergo, it's not a payment to the subcontractor.
Basic contract law.
From the subcontractor's point of view, how could he claim that hotel expense against his own tax ? He's not paid it and the bill is addressed to someone else. It's not his expense.
Not quite the same but I had a similar situation on a VAT inspection. My client booked and paid for the hotel for the subbies and the VAT inspector said the client couldn't claim the hotel bills. The contract was between the hotel and the client. I used this case - Stormseal (UPVC) Window Company Ltd VTD 4538 to argue otherwise and won.