I t was notable that HMRC sought to withdraw the CIS gross payment status of the taxpayer on the basis that the WD[SD\HUKDGʳOHGLWVFRUSRUDWLRQWD[ return after the due date and had also paid its corporation tax liability late for a subsequent accounting period. The cancellation of the taxpayer’s gross payment status was suspended until another case had been decided before the Tribunal during which period the taxpayer had subsequently complied fully with all its tax obligations. The Upper Tribunal determined that HMRC’s decision to withdraw the taxpayer’s gross payment status was not disproportionate despite the fact that the taxpayer had subsequently complied fully with its tax obligations. The Upper Tribunal ruled that HMRC’s decision to cancel a taxpayer’s gross payment status for failure to comply with tax ʳOLQJRUWD[SD\PHQWGHDGOLQHVFRXOGRQO\EH disproportionate in exceptional circumstances. The clear lesson from this case is that if a EXVLQHVVIDLOVWRʳOHDWD[UHWXUQRQWLPHRU to pay tax by the requisite deadline (however minor the compliance failure is) and HMRC serve notice to cancel a business’ gross payment status, it is unlikely that the business will be able to rectify this issue by subsequently dealing properly with its tax obligations. Instead it is likely that they will need to wait at least a year from the date of cancellation before they can apply for their gross payment status to be reinstated. This should act as a wake-up call to those businesses with gross payment status to ensure that all tax returns are submitted promptly and all tax paid by the relevant deadlines. In addition, it is equally important that the directors or shareholders of the business are also tax compliant as the terms of gross payment registration often extend the tax compliance conditions to the directors and shareholders of such businesses.
When might gross payment status be lost?
Once every 12 months, HMRC reviews gross payment status holders and has extremely wide-ranging powers to cancel gross payment status if a gross payment registered business no longer meet all the relevant tests or if they have failed to comply (whether as a contractor or as a sub-contractor) with any provision of the CIS. The annual review is known as the Tax 7UHDWPHQW4XDOLʳFDWLRQ7HVW 7747 +05& has a rolling programme under which it reviews 2% of gross payment status holders each week. HMRC do not inform sub-contractors of the review date and there are no warning mechanisms that a taxpayer may be at risk of failure (except that all traders are expected to know that taxes and returns should be paid and made on time). A sub-contractor can fail the TTQT at review for any of the following UHDVRQV
O A sub-contractor’s monthly tax return has been late four or more times.
O One of those returns was more than 28 days late.
O CIS or PAYE payments were made late four or more times.
O A CIS or PAYE payment was more than 14 days late.
O One income tax payment or corporation tax payment was more than 28 days late.
O On the date of the TTQT review, any of the IROORZLQJDUHRYHUGXH
an employer’s end-of-year return (P35);
a tax return; or
£100 or more.
5HFHQWʳJXUHVVXJJHVWWKDWDERXWRIDOO gross paid sub-contractors lose their gross payment status in the TTQT tests, about half of whom successfully appeal. This means that around 15% are downgraded to net payment status each year. Now more than ever, in order to preserve their valuable gross payment status sub-contractors need to make tax compliance a priority. Contact our construction sector tax advisory team if you would like help reviewing your CIS reporting and systems or your tax affairs more generally, or if you are considering outsourcing the preparation and submission of your CIS and PAYE tax returns at SBTaxPlus@scruttonbland.co.uk
What is gross payment status?
Businesses which are registered for gross payment status are able to receive payments for services provided to other construction industry related businesses in full without any CIS deduction being applied from the payment. Without this registration, businesses either suffer a 20% deduction from the payment made to it (if the taxpayer is registered for payment under deduction) or a 30% deduction (if the taxpayer is not registered for payment under deduction). Consequently, the withdrawal of CIS gross payment status can cause a VLJQLʳFDQWFDVKʴRZLVVXHIRUWKHEXVLQHVVDW DWLPHZKHQFDVKʴRZLVPRUHLPSRUWDQWWKDQ ever.
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