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Topical Tips
112
February
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From 6 April 2007 a new Construction Industry
Scheme (CIS) has operated. Whilst it is not 'new' any more, the rules are worth
revisiting for pitfalls.
Essentially, the rules exist to allow
HM Revenue & Customs (HMRC) to capture all data on persons/businesses
working and paid in the construction industry. This allows HMRC to ensure that
no income in this industry slips through the taxation net. Stiff penalties for
Contractors apply for late or missing monthly returns.
This issue of
Topical Tips does not deal with the scheme in detail, but reviews the
definition of Contractor to ensure clients are aware if they are obliged to
register.
The definitions of Contractor and Sub-Contractor are
sometimes a surprise to people who fall within the scheme. For example, someone
who buys land or property and builds upon it or refurbishes it for sale, will
be required to register as a Contractor under CIS, even though they may be only
operating on a small scale. |
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A Contractor is a business (or other concern) that pays Sub-Contractors for
construction work.
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Contractors are often construction companies or building firms, but may also
include other non-construction businesses (e.g. large retailers, government
departments, etc.) if their average annual expenditure on construction
operations over three years exceeds £1M.
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Contractors can either carry out construction work or supply labour for such
work (this includes labour agencies).
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The same rules apply to foreign businesses operating in the
UK.
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The definition includes property developers or speculative builders erecting or
altering buildings in order to make a profit.
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There is no minimum threshold level of expenditure before you are expected to
register and operate the scheme.
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Note that a property investor is not the same as a
property developer and the investor may not be caught under the rules. However,
if the property portfolio is substantial enough then it may break the £1M
threshold on works on construction operations and will become a Contractor by
definition. You should be careful to check your position if you wish to rely on
this exemption from the CIS.
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If you are caught by the rules then you are obliged
to ensure you have confirmed the taxation status of all persons working for you
who are also caught under the CIS and report on a monthly basis the payments
made to them. The status of the Sub-Contractor will tell you whether you can
pay them gross, or have to deduct tax at either 20% or 30% on all labour
elements paid to them. All persons you pay for construction operations need to
be registered with HMRC or else they will suffer the maximum tax withheld of
30%. |
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Non-construction businesses
spending below £1M pa on construction operations, and private households
engaging builders directly, are not Contractors.
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Construction Operations are
extremely diverse and can catch many modern technologies if they are supplied
and installed during construction activity.
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Know the rules: some areas are
automatically included, whilst others are excluded from construction
operations. See the HMRC booklet CIS340 for assistance (www.hmrc.gov.uk/new-cis/cis340.pdf).
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Be aware that repairs are included
in Construction Operations (unless you are specifically exempted, for instance
you are working on a private household).
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See also
www.hmrc.gov.uk/new-cis/detailed-guidance.htm for extensive
HMRC guidance.
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The test of employment v.
self-employment must be used when engaging a Sub-Contractor – even when
they are CIS registered and are engaged on more than one project.
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PAYE and NIC rules take precedence
over CIS rules and if the person counts as an employee then they are
taxable as such regardless of their CIS status.
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Consult your Barnes Roffe LLP
contact Partner for guidance in this important area.
Topical Tips is designed to be a
simple and useful source of ideas and information for clients and contacts of
Barnes Roffe LLP. If you are unsure about the implications of any idea
contained therein please contact your Barnes Roffe LLP partner. Barnes
Roffe LLP cannot take responsibility if the ideas are implemented without its
involvement. |
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