Tax & Accounting News

Accountants Warn Subcontractors of Taxman’s Hard Line

27/02/2008

Chartered accountants Harris Lipman are warning subcontractors operating within the Construction Industry Scheme (CIS) that the taxman is taking a zero tolerance approach to minor breaches of late payment rules.

HM Revenue & Customs has told two Harris Lipman client companies operating within CIS that their gross payment status – which allows them to be paid without deductions by contractors – is being withdrawn following an annual compliance review.

All contractors with gross payment status are subject to the yearly compliance reviews, which began last October. The checks include a review of all tax returns and payments of tax and national insurance, along with submission of any material requested by HMRC.

Minor compliance failures, including three payments of CIS/PAYE deductions arriving up to 14 days late, will be ignored in the review.

Following their reviews, HMRC told Harris Lipman’s clients that they could not continue to be paid gross and that it would be telling their contractors to pay them with deductions of 20%. The companies cannot reapply for gross payment status for at least a year.

The companies are appealing against the HMRC decision. Although they had breached the PAYE late payment rule, 'late' was defined as one day, two instances of two days, and six days. Senior partner Barry Lewis said: "This is a far from serious breach. However, it is obvious that HMRC are taking a zero tolerance stance.

“We have also become aware of HMRC advising customers of sub contractors to change from gross payment to tax deducted at 20 per cent from 6 March 2008, with no prior notification to either the sub contractor or ourselves. We believe this treatment may relate to late or incomplete payments of income tax and/or sub contractors’ tax, irrespective of the amount of tax due.

“These matters are of huge concern to companies, given the costs of potential appeals and the time and effort involved. There is also the added complexity of companies for whom you undertake work knowing that you are not compliant and the possible loss of credibility with customers.
"Sub contractors with gross payment status must make sure that all PAYE, personal tax and corporation tax payments are made on time and all returns, including any P35 and CIS monthly returns, are submitted by their due dates.

“We have also learned that the CIS review system is picking up instances of minor underpayments of tax, of just a few pounds, that were not immediately collected under the self-assessment system but were carried forward – with HMRC approval – to the next self-assessment due date. It appears that the CIS system does not recognise such commonsense arrangements and treats them as infringements.

“The moral for sub contractors is to pay any correct outstanding tax balance, no matter how small and to retain any payment from HMRC that indicates a small balance can be carried forward. This may be required as evidence in an appeal against loss of gross payment status.

“We would also urge any sub contractors whose customers are being advised by HMRC of a change in the way they are to make payment to seek professional advice, so that the matter can be pursued with HMRC.”

For more details, call Harris Lipman on 0208 446 9000.

 

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