In December 2022 HMRC 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 and their tax agents.

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?

If you are a subcontractor who suffers CIS tax deduction at either the standard (20%) or higher rate (30%), the payment and deduction statement, your record of the amount of CIS tax the contractor has deducted and is written evidence which you can use to prove to HMRC the amount of tax deductions you have suffered.

The CIS tax deducted is a payment on account of your tax and national insurance liability. You need this information to record these details on your self-assessment return. If you have a limited company, the information is needed 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?

Within 14 days of the end of each tax month, contractors are obliged 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:

• Name of the contractor and their employer’s tax reference number.
• Date of the tax month end to which the payment relates or the actual date of payment.
• Subcontractor’s name and Unique Taxpayer Reference (UTR) number.
• Subcontractor’s verification number if deductions are made at a higher rate.
• Gross amount of the payment (excluding VAT where the subcontractor is VAT registered).
• Cost of any materials that have reduced the amount against which the deductions were applied.
• Amount of CIS tax deducted.

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 if they fail 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

You, the subcontractor, must have a suitable record-keeping process to allow you to retain details of the payment and deduction statement received and follow up on any instances where a contractor has failed to provide you with 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 has 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.

Summary

It is vital that you, the subcontractor hold 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.