CISR46040 - Register and maintain subcontractor: compliance test: companies

To satisfy the compliance test a company applicant and its constituent directors (and beneficial shareholders where the company is ‘close’) must have done all the following on time in the 12 months up to the date of application, this applies even where the director or shareholder resigned or sold their shares at some time during the ‘qualifying period’.

  • sent in any IT/CT SA returns due
  • if they (the company or the directors/shareholders) are a contractor, sent in CIS returns and paid CIS deductions on time
  • if they (the company or the directors/shareholders) are VAT registered, sent in VAT returns and paid liabilities on time
  • if they (the company or the directors/shareholders) are an employer, paid PAYE and NICs liabilities on time
  • paid their own NICs (if applicable)
  • complied with all requests for accounts or other relevant information
  • any obligation paid late or still outstanding that is £99.99 or less in respect of PAYE, VAT liabilities or CIS deductions will be treated as meeting the compliance test
  • complied with obligations under the Companies Act 2006 to provide accounts and returns

For further detailed information regarding the failures that may or may not be accepted for the purposes of the compliance test see;

CISR Reference Compliance

CISR46060

Main reasons for failure

CISR46080

Compliance Tolerance


Finally, there must be 'reason to expect' that the applicant company will continue to comply with tax obligations in future (see CISR46100 for more details on the 'Reason to expect' test).


Exception from compliance test

The company itself does not have to satisfy the criteria in the compliance test if:

  • One or more of its members is registered for gross payment (as a partnership or otherwise) and
  • That member or those members possess or are entitled to possess
    • At least 50% of the share capital or issued share capital of the company or
    • At least 50% of the voting power of the company or
    • So much of the issued share capital of the company as would, on the assumption that the whole of the income of the company were distributed among its members, entitle the member or members to receive at least 50% of the amount so distributed, or
    • Such rights as would entitle the member or members in the event of winding up of the company or in any other circumstances, to receive at least 50% of the assets of the company which would then be available for distribution among its members (disregarding any rights a member might have as a loan creditor).

If the company were to gain gross payment status in this way, the member who already holds gross payment status cannot have been granted it in this way or in the equivalent way for firms.

Reasonable excuse

You may ignore certain failures to comply with the above conditions where

  • the company applicant had reasonable excuse for the failure to comply,
    and
  • once the excuse ceased to apply, the company then complied with the obligation without unreasonable delay.

See CISR81020 for more information about what can be regarded as reasonable excuse.

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Timely compliance

The legal requirement is not merely that the applicant must have fulfilled tax obligations arising in the 12 month qualifying period preceding the date of application. Those obligations must, in addition, have been fulfilled within the time allowed in law else this requirement is not satisfied and the applicant fails the compliance test.

However, there are certain tolerances specified in the regulations whereby HMRC will overlook a compliance breach. There is more information about these tolerances at CISR46080.

See CISR18140 for information on companies involved in

  • Company Voluntary Arrangements
  • Informal arrangements

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Section 64(5), FA2004

In addition to examining the compliance of the company in the qualifying period, FA04/S64(5), allows HMRC to examine the compliance of its principals.

If any of the following apply, you may examine the compliance of directors (and shareholders if the company is close) where;

  • a company is seeking registration for gross payment for the first time
  • there has been a change in the control of a company that is registered for gross payment and you wish to determine whether the new interest represents a compliance risk
  • cancellation of a company’s registration for gross payment is being considered under FA04/S66.

The application form for companies to apply for gross payment status (CIS305) now includes a reference to the fact that a direction under s64(5)/04 may be made.