HMRC have announced in their December Employer Bulletin that they have changed the way in which they will deal with requests for Construction Industry Scheme (CIS) payment and deductions statements from subcontractors, their tax agents, and representatives with effect from 1 December 2022.
Going forward, HMRC will now only deal with one payment and deduction statement request per customer, with any further requests for information being refused. Therefore, subcontractors should no longer rely on being able to obtain this information from HMRC.
Why are payment and deduction statements important?
For those subcontractors who suffer a CIS tax deduction at either the standard (20%) or higher rate (30%), the payment and deduction statement is their record of the amount of CIS tax the contractor has deducted and is written evidence which the subcontractor can use to prove to HMRC the amount of tax deductions they have suffered.
The CIS tax deducted is a payment on account of the subcontractor’s tax and national insurance liability; the subcontractor needs this information in order to record these details on their self-assessment return where they are a sole trader or a partner in a partnership. Where the subcontractor is a limited company, the information is needed to enable the subcontractor to potentially offset these amounts through the monthly PAYE process using the Employer Payment Summary (EPS) against the company’s PAYE and CIS liabilities.
Since 6 April 2021, HMRC has had the ability to amend the CIS deductions claimed by a limited company subcontractor via the EPS process, where the subcontractor is unable to provide satisfactory evidence to support the amount claimed.
The payment and deduction statement remains an important document for a subcontractor.
What is a contractor’s responsibility regarding payment and deduction statements?
Contractors are obliged, within 14 days of the end of each tax month, to provide a written statement to every subcontractor for whom they were required to make CIS tax deductions.
Whilst there is no set format for the payment and deduction statement, the following information must be included:
Duplicate statements can be provided to subcontractors, where they did not receive the original or it is lost but the replacement statement must be noted as a ‘duplicate’ to avoid any confusion in instances where the original may later be located.
A contractor could be liable for penalties where it fails to provide the subcontractor with a payment and deduction statement within the prescribed timescale or where it fraudulently or negligently provides an incorrect written statement.
Importance of subcontractor maintaining adequate records
It is important for subcontractors to have suitable record-keeping processes in place to allow them to retain details of the payment and deduction statement received and to follow up any instances where a contractor has failed to provide a suitable written statement within the prescribed timescale. Where a subcontractor has misplaced a statement or did not receive the original, it can request a duplicate from the contractor.
HMRC have indicated that it may consider additional requests for missing payment and deduction statements, but the subcontractor will need to be able to demonstrate that they have contacted the contractor for a copy and have been unable to get it, for example because the contractor is no longer trading.
In such circumstances, the subcontractor should write to HMRC providing information which includes the subcontractor’s name, address and UTR, the name and address of the contractor and, if known, its tax reference, the dates or tax month in which the payments were made and confirmation that the subcontractor has contacted the contractor and they are unable or will not provide them with the details.
It is vital that a subcontractor holds suitable documentary evidence in support of any claims for CIS tax deductions suffered within its respective tax return submitted to HMRC; where missing or insufficient details are held it may not be able to rely on HMRC to provide any missing information.
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