In her blog on 14 April 2008 Cathy Corns highlighted the risk that some businesses could lose their gross payment status if they are not fully up to date with all their tax compliance. We are now starting to see the results of HMRC’s review of the first 12 months of the new CIS and they appear be applying their rules quite ruthlessly.

HMRC said they would not impose penalties for late returns provided all returns for the first 6 months of the new scheme were submitted by 19 October 2007. Some people may have interpreted this to mean that there was a general amnesty for this first 6 month period and, provided businesses kept up to date after that, they would not risk losing their gross payment status. This is not the case. Our understanding is that HMRC’s amnesty (if it can be called that) applied only to the first 3 months and any late returns made after June 2007 will result in the business being transferred to a net payment status. This could have a disastrous effect on cash flow, especially if the tax deducted cannot be recovered in full until after the end of the tax year.

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