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Cancellation of your Gross Payment Status? ...
... You may have a right of appeal. Grant Thornton has recently seen a number of cases where HM Revenue & Customs (HMRC) has looked to cancel a subcontractor‘s Gross Payment Status (GPS). However, on further inspection, HMRC‘s argument has been withdrawn due to incorrect data and a misinterpretation of the facts. Kerry McKeown, tax director at Grant Thornton, Southampton, looks at the issue
GPS is an invaluable provision for subcontractors in the construction industry, permitting contractors to pay their subcontractors gross, ie without the deduction of the 20% Construction Industry Scheme (CIS) tax. Although subcontractors will ultimately be required to pay tax and National Insurance contributions (NIC) on payments received through their personal tax returns, the ability to initially receive the payments gross affords the subcontractor a cashflow advantage.
As has always been the case, in order for HMRC to grant and subsequently uphold GPS, the subcontractor must meet certain tests in reference to the business, turnover and tax compliance obligations. While each of these tests is equally important, it is the latter which is commonly referred to by HMRC when looking to withdraw GPS.
The compliance test requires the subcontractor to have met all tax obligations on time in the 12 months prior to the date of application. However, our recent experience has shown that HMRC has not always applied this test correctly, or indeed based the test upon correct data.
In one example, a client was advised by HMRC that its GPS was to be cancelled due to a failure to submit 12 months of National Insurance records. The client advised us that HMRC‘s
Kerry McKeown
assertions were incorrect, we therefore lodged an appeal and HMRC ultimately withdrew their proposal to cancel GPS.
In a further example, a partnership was advised that its GPS was to be cancelled on account of an alleged compliance failure by one of the partners. In this instance HMRC had overlooked the point that only compliance
failures in respect of income derived from the partnership are relevant when considering the partners‘ compliance status in reference to GPS. As a result, HMRC agreed that there had been no compliance failures specifically relating to the partnership, and the income derived from it by its partners, and the client retained its GPS.
What should you do to avoid losing GPS?
Our advice is to adhere, as much as possible, to the specified tests to avoid the withdrawal of GPS. However, should you receive notification from HMRC that GPS is to be withdrawn, it is advisable to check the facts and seek professional advice. You should not just accept that HMRC is correct.
What should you do if you receive notification from HMRC regarding an alleged compliance failure?
On receipt of initial notification from HMRC of a compliance failure, you have the opportunity to provide HMRC with a ‘reasonable excuse‘ as to why the failure has occurred. It is recommended that professional advice is sought at this point, to limit the intervention by HMRC. If you do not respond to HMRC or you do not have a ‘reasonable excuse‘ HMRC will then issue a cancellation notice which the subcontractor would have a further 30 days to appeal against, before GPS is cancelled.
Should a subcontractor have their GPS revoked, it is possible to re-apply for GPS one year after the status has been cancelled. However, given the one-year delay and the administration involved in a secondary application, every effort should be made to retain the status in the first place.
Details: Kerry McKeown 023-8038-1160
kerry.r.mckeown@
uk.gt.com
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grant-thornton.co.uk THE BUSINESS MAGAZINE – SOLENT & SOUTH CENTRAL – OCTOBER 2012
www.businessmag.co.uk
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