CIS conundrums

HMRC have supplied our client (a building contractor) with details of construction industry scheme (CIS) under-deductions for each of the three years 2009/10 to 2011/12.

The under-deduction figures themselves are not in dispute but our contention is that the Income Tax (CIS) Regulations SI2005/2045 reg 9 condition A applies.

We have explored the possibility of condition B applying but without success. This aspect is always difficult because we have no access to each individual subcontractor’s records but as an alternative it has been suggested that to avoid double taxation our client could come to an “informal arrangement” with the subcontractors from which the deductions should have been made.

If our contentions in respect of condition A fail how would an “informal arrangement” work? Assuming the full cooperation of the subcontractors do readers consider that the following scenario is realistic...