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From 6 April 2007 there are changes to the CIS compliance test which determine whether taxpayers can keep the right to be paid without deduction.

HMRC are writing to all subcontractors who are currently paid gross under the Construction Industry Scheme (CIS) to clarify certain changes to the scheme which came into operation from 6 April 2007.

Under the new scheme a review will be carried out at least once a year to see whether taxpayers have made all their payments in full, on time, and that all the necessary returns have been submitted.

Although subcontractors should meet all their obligations in full and on time, the new scheme allows them a few small lapses from full compliance. When considering whether a subcontractor has passed the compliance test, HMRC will disregard, during the same 12 month period, any or all of the following:

• three late submissions of the monthly return – up to 28 days late;
• three late payments of CIS/PAYE deductions – up to 14 days late;
• one late payment of self assessment tax – up to 28 days late;
• any employer's end of year return made late;
• any late payments of corporation tax – up to 28 days late, including where any shortfall in the payment has incurred an interest charge but no penalty;
• any self assessment return made late; or
• any failures classed as 'minor and technical' in relation to your obligations under the old scheme, where these fall within the 12-month period up to the application.

Link

HMRC: Retaining gross payment status in new CIS