Beech: CIS determinations

Occasionally, tax law means what it appears to say.  So it did in the Judicial Review case of Beech Developments (Manchester) Ltd and others [2023] EWHC 977 (Admin).

Where the Construction Industry Scheme (CIS) applies, a contractor may be obliged to deduct tax from payments made to a subcontractor and pay it over to HMRC.  The precise circumstances in which, and the rate at which, tax must be deducted are not relevant to the Beech case.

The case revolved around two of the regulations which govern the CIS.

One (Regulation 13) gives HMRC the power to make what the High Court called a ‘Liability Determination’.  That is, broadly, a determination stating the amount which HMRC believe the contractor should have paid over: effectively an estimated assessment.  The contractor has the usual appeal rights if he believes the determination overcharges him.

The other (Regulation 9) gives HMRC the power to absolve the contractor of the obligation to account for the tax which should have been deducted and paid over under the CIS.  This may be on either of two bases.

  1. If the contractor persuades HMRC that he took reasonable care to comply with the rules of the CIS and made an error in good faith or because he genuinely believed that the CIS didn’t apply to the payment.
  2. If HMRC are satisfied (following a request from the contractor) that the subcontractor has paid all the tax due on the amount in question or wasn’t liable for tax in the first place.

If HMRC decline to make a direction on the ‘reasonable care’ basis, the contractor can appeal.  If HMRC decline to make a direction on the ‘tax has been paid’ basis, there’s no appeal: any challenge can be only by judicial review.

HMRC have always contended that the effect of Regulation 13(3) is that the two regulations are mutually exclusive.  That is certainly what the regulation appears to mean: and the High Court have confirmed that it agrees with HMRC.

In particular, the Court agreed that once HMRC have made a Liability Determination under regulation 13, it is not possible for HMRC to make a ‘Non-Liability’ Determination under Regulation 9: and therefore, no scope for challenging their refusal to do so by appeal or by judicial review.

What this means is that the position on a CIS Liability Determination is as HMRC have always said it is.  Once a Liability Determination has been issued, it is too late to dispute it on the grounds that you took reasonable care, or that the subcontractor has paid (or wasn’t liable for) the tax.  That doesn’t mean you can’t dispute it at all: but you can’t dispute it on those grounds (which in many cases will be the best or only grounds for dispute).

It’s for this reason that, before issuing a CIS ‘Liability Determination’ HMRC will always issue a warning letter giving the contractor at least 30 days to make representations to the effect that a ‘Non-liability Determination’ should be issued.  It may be tempting to ignore the warning on the basis that you can always appeal.  Don’t: the warning is there for a reason.

For information, please get in touch with your usual BKL contact or use our enquiry form.



Sam Inkersole

In 2022, Sam won the Taxation’s Rising Star award at the Taxation Awards in and was named in the Accountancy Age 35 Under 35.

Jon Wedge

While Jon’s client work focuses on the financial services sector, he also oversees the firm’s assurance service, as well as supporting the trainees following in his footsteps.


Elana joined us in 2017 as an ACA trainee, after graduating from Durham University where she had studied languages. She is now a manager in our assurance team.


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