CISR75030 - Deductions: SA subcontractors: claims for in-year repayment
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General
Detailed guidelines for dealing with claims by SA subcontractors for in-year repayments are contained in the Self-Assessment Manual (SAM) at SAM40040.
Grounds for in-year repayments
In-year repayments are now established on a statutory basis by SI2005/2045 reg 17. This allows for repayments to be made with the following provisos
- the subcontractor’s accounting period determining the profit for the tax year must have ended
- no such repayment may be made after the end of the tax year for which the deduction was made
- where the in-year claim is made following the cessation of trade
- partners must obtain written agreement from other partners to their share of the deductions
- the subcontractor’s tax affairs must be up to date
- any excess of deductions over the subcontractor’s liability, including sums due from the subcontractor as contractor, shall be repaid
- there is no appeal against a refusal.
Refusal
See CISR75050 for guidance relating to the refusal or reduction of repayment claims.
Cessation cases
All repayment claims (including cessation cases) must be made on forms CIS40 for sole traders or CIS41 for partners.
For in-year repayments following the cessation of trade your calculations should include only part of the claimants’ Income Tax personal allowances. For example, if a subcontractor ceases on 30 September, they should be given half the annual allowances due to them for that year.
Checking of deductions made
The Processing Office dealing with the subcontractor can check the details on the subcontractor’s repayment claim against the details captured on the CIS system which will be derived from the information contained within CIS300 monthly returns sent to HMRC by the contractor.
See CISR73610, the action guide covering the checking of payment and deduction details.
In-year repayments can be repaid directly to the subcontractor or allocated against payments on account in equal instalments. In-year repayments can also be used for Balancing Charges or against pre-SA arrears because they are treated as cash.
Deduction details must be checked on the CIS system for all in-year repayment claims.
You can view this information in CISR and on the HIB.
Payment and deduction statements (PDS)
The contractor must give every subcontractor from whom a deduction is made a PDS as evidence of all payments and deductions made in each tax month (a tax month runs from the 6th of one month to the 5th of the next). The subcontractor may submit this to HMRC to claim credit for the CIS deduction.
The contractor must also submit a monthly return (CIS300) to HMRC showing payments made to all subcontractors, whether paid gross or under deduction, as well as any deductions made as appropriate.
See CISR72060 for information covering PDS’s and for guidance relating to monthly returns CISR61010 onwards.
You can view this information in CISR and on the HIB.
Special cases
There will be occasions when you may need to make a special ‘informal’ in-year repayment of CIS deductions. These situations may arise in the following circumstances;
- the contractor has in error made a deduction at the higher rate of deduction when they knew that the standard rate of deduction should have applied
- the contractor has in error made a deduction at the higher or standard rate of deduction when they knew that gross payment status has applied should have applied
- the contractor has made a higher CIS deduction than is due because in error they used an incorrect cost of materials.
In such cases the contractor should be encouraged to put the error right by making an adjustment to the next payment to the subcontractor. In such cases the contractor’s monthly returns will show the CIS deductions that were actually made each month from the subcontractor.
However if the contractor refuses to repay the over-deduction in this way, and the subcontractor claims hardship in respect of the excessive CIS deduction(s) made, then in those circumstances only you may make an ‘informal’ in year repayment. In these cases forms CIS40 and CIS41 will not be required, and the requirements of SI2005/2045 reg 17 also need not be met.
Repayment will be made by creating a Free-standing credit into the Self-Assessment statement of account for the subcontractor (see SAM110000 for further information).