Under the Construction Industry Scheme (CIS), contractors deduct money from a subcontractor’s payments and pass it to HMRC. The deductions count as advance payments towards the person’s tax and national insurance bill. Contractors must register for the scheme, but subcontractors don’t have to register, although deductions are taken from their payments at a higher rate (30% versus 20% or 0%) if they’re not registered.
Subcontractors must provide business and identity details if they are:
- Registering within CIS for payment under deduction (20%)
- Registering within CIS for gross payment status (0%)
HMRC may charge penalties where subcontractors provide false information or documents about their business when registering for CIS and are clamping down on subcontractors trying to push through false gross payment status registration.
Many subcontractors falsify the information they give when registering for CIS so that no deduction is suffered that will impact their cash flow as well as meaning less administration is required.
HMRC may request evidence to support information provided during registration and will cancel your registration if you have done any of the following:
- Have supplied information knowing it to be false
- Have supplied any documentation which is false
- Don’t respond to requests for evidence to support your application
Penalties are given by HMRC for false registration. A penalty of £3,000 will be charged if you provide HMRC with information of documents about your identity, business or turnover recklessly or you know to be false, and then give further false information or documents or do not respond to requests to supply additional information.
A penalty of £2,000 will be charged by HMRC if you are unable to provide satisfactory documents or you confirm that your original registration provided false information about your identity and business or your business and turnover.
HMRC will charge a £1,000 penalty if the false information or documents are about your identity, business or the turnover.
A criminal investigation may be carried out which could lead to prosecutions, if you do the following:
- Give HMRC information that you know to be untrue, both verbally or in documentation
- Dishonestly misrepresent your liability to tax
- Claim payments to which you are not entitled to
If you are found to have made deliberate errors, HMRC may choose to monitor your tax affairs more closely.
If you do not agree with a penalty you receive, you may appeal it with HMRC. If they make a decision that you can appeal against, HMRC will write to you explaining the decision and the process to follow if you disagree. Usually, there are three options. Within 30 days you can:
- Send new information to the officer you have been dealing with and ask them to take it into account
- Have your case reviewed by an HMRC officer who has not been involved in the matter
- Arrange for your appeal to be heard by an independent tribunal, who will decide the matter
If you are unsure or you require any assistance or further information on the Construction Industry Scheme, please do not hesitate to contact Charlotte Stewart (firstname.lastname@example.org) or your usual AAB contact.