CISR72130 - Deductions: credit and repayment: disputes between contractor and subcontractor
Source: gov.uk (2025-10-16)


CISR72600 (https://www.gov.uk/hmrc-internal-manuals/construction-industry-scheme-reform/cisr72600)

Action guide contents

A subcontractor may claim that a deduction made under the Scheme either
- should not have been made by the contractor because the work involved falls outside the scope of the Scheme
or
- the amount of the deduction made was too high because the materials element allowed by the contractor was too low.
If the parties cannot resolve the matter either one of them may contact HMRC for assistance.

Scope of the Scheme

Where the dispute is based on whether the work done is properly subject to the Scheme you should consider its nature in the light of the guidance in CISR13000 (https://www.gov.uk/hmrc-internal-manuals/construction-industry-scheme-reform/cisr13000) onwards. This enquiry could come to you either from the subcontractor or the contractor. Take care, however, not to issue a general letter to the subcontractor or the contractor saying that the work they engage in does not fall within the scope of the Scheme. Subcontractors operating on the margins of the industry may sometimes be within and sometimes outside of the scope of the Scheme depending on the particular specifications of a contract. Your assessment of the parties' contentions should be based on the actual work carried out under the contract giving rise to the dispute.

Materials

If the dispute is based on disagreement about the materials charge to be discounted in determining how much of the payment is subject to deduction, you should examine the evidence submitted in light of the guidance at CISR15060 (https://www.gov.uk/hmrc-internal-manuals/construction-industry-scheme-reform/cisr15060) regarding materials.

Proposed settlements

You should bear in mind that the information presented by one party in a dispute will represent their own interpretation of the facts. In dispute cases you should liaise with the Supervising Office or Employers Section dealing with the other party to obtain the latter's account of the facts of the matter.

The Supervising Office responsible for the subcontractor and the Employers Section responsible for the contractor should agree between themselves a proposal for settlement of the dispute. If, however, they are unable to agree, a full report should be submitted to the Technical Support HO for the Employers section responsible for the contractor, together with the relevant papers for both parties. If the Technical Support HO is unable to progress the matter any further, a submission may then be made to the CIS Technical Support team located in Local Compliance.

Normally the two parties will accept HMRC's proposals. However, in the last resort, either may apply to the tribunal for this to be determined, provided that HMRC has not made a Regulation 13 determination on the contractor. In the meantime the contractor is required to make the appropriate deduction on the disputed payment, and pay it to the Debt Management and Banking office in the normal way. (This content has been withheld because of exemptions in the Freedom of Information Act 2000)

If the final determination is that some or the entire disputed item should not have been subject to the deduction, the excess should be repaid to the subcontractor following the procedure outlined below.
- Self-Assessment Subcontractor - This repayment should be compared against the contractor’s monthly return showing the incorrect deduction. As this amount will be quite separate from anything for which credit is given in response to the subcontractor's Self Assessment, payment is not to be delayed until the Self-Assessment return is received. This repayment should be made by creating a Free Standing credit introduced into the subcontractor’s statement of account in Self Assessment.
Where a part of the amount included on a contractor’s monthly return is repaid, you should record this in the subcontractor's papers and make an SA note of the repayment made. You should print a copy of the relevant contractor’s monthly return and noting the credit/repayment details alongside the relevant payment and deduction entry. This is to ensure that any later claim does not result in credit/repayment being given twice.
- Company Subcontractor - If a company subcontractor has had an incorrect deduction made, and they can show that they will not be able to offset the incorrect deduction against the PAYE/NIC they are due to pay over to HMRC and that this failure to do so will cause difficulty for the company, then in these circumstances only you may make an informal repayment to the company in advance of the submission of the P35 (for non RTI years). This repayment should be made by the Centralised Employers team NICEO for the subcontractor by sending a Payable Order request form (PORF) to DMB.
For RTI years if the company has submitted Employer Payment Summary (EPS) returns for the tax year which include the incorrect deduction is made they should be asked to send you a revised EPS reducing the amount of the CIS deductions claimed by the amount of the in-year repayment you are now going to make. This repayment should be made by the Centralised Employers team NICEO for the subcontractor by sending a Payable Order request form (PORF) to DMB.Where a part of the amount included on a contractor’s monthly return is repaid, you should record this in the subcontractor's employer’s papers by printing a copy of the relevant contractor’s monthly return and noting the credit/repayment details alongside the relevant payment and deduction entry. This is to ensure that any later claim does not result in credit/repayment being given twice.

This is not a formal 'in-year repayment' or a repayment of deductions under FA04/S61. It is the repayment of an incorrect deduction.

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Contractor disputes amount of payment or deduction claimed

Where the contractor disputes the amount of payment or deduction claimed by the subcontractor, you will need to take the following action;

Company subcontractor

You will need to follow the guidance at PAYE53012 to determine the credit for the CIS deduction(s) that you may allow to the company subcontractor.

Individual or Partner subcontractor

You will need to allow credit for the CIS deduction(s) to the subcontractor in the amount they have claimed on their Self-Assessment return. To do otherwise would be to jeopardise any potential Enquiry under s9A/TMA70 into that return.

Note: if it appears that the subcontractor is trying to claim credit for an amount which the contractor should have deducted, rather than an amount which actually was deducted, then no credit can be given and the guidance in CISR72080 (https://www.gov.uk/hmrc-internal-manuals/construction-industry-scheme-reform/cisr72080) should be followed.

You should also be aware of the possibility of false claims. If you suspect that a claim is based on false evidence of deductions or you have suspicions in any other respect, in accordance with CISR73030 (https://www.gov.uk/hmrc-internal-manuals/construction-industry-scheme-reform/cisr73030) you should refer the case using the RIS/CIS Referral stencil available on the CIS Intranet.