Can you afford to lose gross payment status for CIS?

05 June 2008

Construction Industry Scheme - more stringent compliance measures in place for gross payment status

While most businesses in the construction industry are aware that HMRC is now applying more rigorous compliance review procedures to assess whether they still meet the necessary criteria to receive gross payments, many do not appear to be aware just how strict these procedures are.

Many businesses currently registered to receive gross payments are at a significant risk of being caught under the new continuous review process and lose this status. They would then have to receive payments net which has an immediate impact on cash flow, and may also lead to a damaged reputation in the industry.

The CIS system will select businesses for review and these will be carried out annually. The review will consist of checks on their compliance history which will include PAYE; national insurance; corporation tax returns; and crucially whether or not the directors/partners personal tax affairs are up to date. Current trends suggest that in excess of 30% of subcontractors reviewed each month lose their gross payment status.

HMRC has said that the following breaches would be allowed within a 12 month review period:

  • Three late submissions of monthly CIS returns (up to 28 days late)
  • Three late payments of CIS/PAYE deductions (up to 14 days late)
  • One late payment of self assessment tax (up to 28 days late)
  • Any employer’s end of year return made late
  • Any late payment of corporation tax (up to 28 days late)
  • Any self assessment return made late.

In these circumstances, a director paying his July self assessment liability in September would cause the company to lose its status to receive payments gross.

For partnerships, all partners and the firm as a whole must remain compliant for gross payment status to be retained.

For companies the rules include compliance with company law filing deadlines, such as for filing accounts and annual returns.

Where businesses find themselves falling under these new checks they have a period of 90 days in which to appeal before they are moved to net payment. HMRC has stated that where a business is moved from gross to net payments it is obliged to write to all bodies that have made gross payments to them in the last 24 months and advise them of the change in status.

Businesses within these regulations would be well advised to review all their systems and procedures to ensure that they have every chance of remaining compliant and continuing to receive gross payments. If you would like assistance in reviewing your procedures please get in touch with your normal contact at CRM or e-mail us.