United Kingdom
3 January 2012 - HMRC amends CIS withdrawal of gross status procedures
In recent First Tier Tribunal cases it was decided that the automatic withdrawal of gross payment status for construction industry subcontractors who failed a Tax Treatment Qualification Test was invalid, because HMRC had failed to exercise its discretion as required under S 66(1) FA 2004.
HMRC has therefore amended its procedures, introducing a new step before gross payment status is withdrawn. Formerly, HMRC stated ""If you fail the Review, your gross-payment status will be withdrawn". "Will" has been changed to "may", and the additional step in the procedure is highlighted in bold below. HMRC now states:
"If you fail the Review, your gross-payment status may be withdrawn (that means you will no longer be eligible to receive your payments in full without a deduction taken off).
First of all, HMRC will write and tell you that you are about to fail the Review. They will set out the reasons for this and will give you a chance to explain why you may not agree. For example, if you believe you have a reasonable excuse for the particular defaults that will cause you to fail the Review you should tell HMRC at this stage. HMRC will consider what you say and then make a decision.
If HMRC accept your explanation, you will not have your gross payment status withdrawn and this will be confirmed in writing. However, if you do not reply to HMRC’s initial letter or HMRC do not accept your explanation for the default, they will write, withdrawing your gross payment status in 90 days' time and setting out what obligations you have failed to meet. This is to allow you to appeal, if you consider that the decision is incorrect, or to make the necessary adjustments to your business in preparation for the switch from being paid gross to being paid under deduction."
It will be interesting to see how often the new procedure will result in a decision not to withdraw gross status, but at least subcontractors can now make representations about a proposed withdrawal of gross status without the cost and delay which a formal appeal would involve.
Please contact Alison Hawkes for more information on this change, or for assistance with any Construction Industry Scheme matters.