How PSTAX Saved a Client from a £1.3 Million HMRC CIS Tax Bill

PSTAX Saves Client Millions in Unnecessary CIS Tax Liability

Recently, we were contacted by a public sector client seeking our support following an internal Construction Industry Scheme (CIS) review by HMRC. It revealed errors and omissions and an apparent liability of underpaid CIS tax of over £1.5 million We reviewed the clients monthly CIS300 returns, payments made to the subcontractors and the services provided. Following our support, the client eventually settled the case with a payment of only £200,000 to HMRC, representing a massive saving of £1.3 million. In addition, of the £200,000 settlement, a significant amount of this sum is being effectively refunded to our client by agreeing deductions from future payments to the relevant subcontractors.   

Our client was resigned to its fate assuming that the findings of HMRC could not be challenged. This was primarily because it knew it had not followed the correct CIS verification and reporting obligations due to a change in staff and a lack of resources.  Thankfully for our client, it sought our confirmation!  

‘Deep Dive’ Review 

Our client had failed to appreciate that not all of the payments made to its suppliers fell within the definition of ‘construction operations’. PSTAX carried out a thorough ‘deep dive’ CIS review. We checked the client’s monthly CIS300 returns, any payments made to the subcontractors and in particular the services provided. We then compared this critically with the payments made by our client to the suppliers on the HMRC list and from our review we found that not all of the payments were for services or ‘works’ that fell within the scope of construction operations.   

It was important to check any over-arching contracts, works agreements, emails etc between the parties to establish what work or service was agreed upon. In addition, we also needed to check that there were not ‘mixed contracts’ covering works both within the scope of CIS as well as those that were outside as the CIS rules require all payments for mixed contracts to be treated as within the scope of CIS. 

The deep dive review was well worth the time spent as we identified about £400,000 of payments made to suppliers that were not for construction operations. We had already developed a good working relationship with the HMRC officials so when we found that the findings of HMRC could be adjusted, we provided the details to the officials and the liability was quickly reduced by the £400,000 

Regulation 9(4) 

The next part of the support we provided to this client was to write to HMRC explaining the reasons for the errors and omissions failures to mitigate any penalties. We also requested that HMRC use its powers under the CIS regulations to consider any tax already paid by the subcontractors.   

This regulation allows HMRC to check no further CIS tax was due to avoid tax being paid twice on the same payments.  

The good news was that most of the subcontractors had already reported the income from our client and, crucially, had indeed paid the tax on this income for the previous tax years in question.  

The potential CIS tax liability was further reduced by £900,000 

That left our client with a total liability of about £200,000 to settle with HMRC representing a massive saving of £1.3 million.  In addition, of the £200,000 settlement, a significant amount of this sum is being effectively refunded to our client by agreeing deductions from future payments to the relevant subcontractors.

How PSTAX can support your organisation with an HMRC CIS Review

If you are about to have an HMRC CIS review, please let us know. We can support you through the process, and based on previous experience, save you a significant amount of CIS tax. Similarly, if you are concerned that your CIS processes and policies may require updating or you would like us to conduct a high-level or more detailed (HMRC style) CIS review, get in touch with our friendly team. 

With the increase in HMRC CIS compliance activity, we recommend we have a discussion to check your CIS policies and procedures to ensure you are compliant.  It may be only a matter of time before you have either an HMRC CIS compliance review or an employment taxes review that will include CIS.  

PSTAX has significant experience in dealing with HMRC, compliance reviews and CIS, contact us today and ensure your CIS compliance is watertight!

Contact us today 

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Sudeep Ganguli

Written by Sudeep Ganguli

After graduating, Sudeep joined HMRC before moving to EY as an employment taxes specialist. In 2000, he began specialising in public sector tax issues, working with Duncan Groves and Nick Burrows. Before joining PSTAX in 2019, Sudeep was an Associate Director at RSM.

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