We have spoken to a number of clients and potential clients over the last couple of months who have been looking at developing or putting up a new build on the land of a property that has been purchased. Therefore, we wanted to briefly cover the Construction Industry Scheme (CIS). What is it and when you should be registered?
Under CIS, contractors deduct money from a subcontractor’s payments and pass it to HM Revenue and Customs (HMRC) on their behalf. The deductions count as advance payments towards the subcontractor’s tax and National Insurance.
Contractors must register for the scheme. Subcontractors do not necessarily have to register, but deductions are taken from their payments at a higher rate if they are not registered.
Who counts as a contractor or subcontractor?
You should register as a contractor if either:
- you pay subcontractors for construction work
- your business does not do construction work but you spend an average of more than £1 million a year on construction in any 3-year period
You should register as a subcontractor if you do construction work for a contractor.
If you fall under both categories you must register as both, this is explained further below.
If your business is construction and you pay subcontractors for construction work, you’re a ‘mainstream’ contractor. This applies if you’re a:
- labour agency
- gangmaster (or gang leader)
- property developer
You count as a ‘deemed’ contractor if your business does not do construction work but you spend an average of more than £1 million a year on construction in any 3-year period. This could apply to:
- housing association or arm’s length management organisations (ALMOs)
- local authorities
- Government departments
Work covered by CIS:
CIS covers most construction work to:
- a permanent or temporary building or structure
- civil engineering work like roads and bridges
For the purpose of CIS, construction work includes:
- preparing the site, eg laying foundations and providing access works
- demolition and dismantling
- building work
- alterations, repairs and decorating
- installing systems for heating, lighting, power, water and ventilation
- cleaning the inside of buildings after construction work
Under the CIS Scheme there a few key things that you will need to do:
- Verify the subcontractors to check what deduction you should be making.
- Before paying them, check what deduction should be made and pay the net figure.
- On a monthly basis complete a CIS return to HMRC that details all the payments to subcontractors for the month which details deductions made.
- Pay the deductions made to HMRC.
There are more aspects to this topic, so if you are looking at property developing i.e. building new builds or other such projects, then it is something you should consider and ensure you get right as there are penalties for not submitting the appropriate returns by the due dates.
We can advise on if CIS is required for your business, as well as help complete the relevant forms for you. Please contact us for more information.
October 2nd, 2018