A contractor is a business or other concern that pays subcontractors for construction work. They may be construction companies and building firms, but may also be government departments, local authorities and many other businesses that are normally known in the industry as ‘clients’. They can also be deemed as a contractor where their average annual expenditure on construction operations over a period of 3 years is £1 million or more.
An important exception are private householders. Where a Private householder employs a subcontractor to carry out construction operations on their private residence then this would not fall under the construction industry scheme. This is different from where an individual employs a subcontractor to carry out construction operations on a commercial project. This would fall under the scheme as in this case the individual is not operating as a private householder.
A subcontractor is a business that carries out construction work for a contractor.
The scheme covers all construction work carried out in the UK, including jobs such as
- site preparation
- painting and decorating
- Cleaning to the interior of a building at the end of a construction operation
- The installation of a system – such as heating, air conditioning or power supply system. (Note – this is for the installation only, not the repair – but where the repair is extensive be careful that this is not effectively a new installation).
The UK includes UK territorial waters up to the 12-mile limit. Therefore construction work carried out overseas is outside the scope of the scheme. Any businesses, whether they be UK based or overseas based, must operate the scheme if the construction work is carried out within the UK.
Services which specifically fall outside of the scheme include:
- Carpet fitting
- Cleaning that does not form part of the construction operation
- The repair of systems forming part of a building (as opposed to the installation of new systems)
- Professional services such as architects or surveyors where they are related to their normal services. For instance if an architect is engaged to design a building this would be outside the scope of CIS. However if they are engaged to project manage the building of the property this would fall within the scope of the scheme.
- Sign writing
- Landscaping – unless carried out as part of the construction operation.
- Art installations – unless that installation also carries out a functional operation of the building
Plant hire without the supply of an operator. If an operator is also supplied the whole thing falls within the scheme.
If you are a contractor, you will need to do the following things
- Follow the normal processes to check that your subcontractor is able to work in the UK
- Assess whether your subcontractor is correctly reporting as a self employed person. Take note that you sign documentation to declare that you have done this, and an incorrect declaration can lead to a £3,000 fine.
- Verify each subcontractor by calling HMRC to confirm whether they should be paid gross, with 20% CIS tax deducted or 30% CIS tax deducted
- Prepare a voucher statement for each payment to a subcontractor
- Complete the monthly CIS Return to include details of all subbies physically paid within the month and pay over any tax deducted to HMRC.
If you are a subcontractor you may want to register with HMRC, but there is no legal requirement to do so. If you are not registered however any contractor employing you will have to deduct 30% CIS Tax. If you want to be paid gross you will have to demonstrate that:
- You have a net turnover of £30,000 or more (excl vat and materials) – this is per partner if you are a partnership or per director if you are a company.
- You are truly self employed
- You are up to date with your tax administration and have a good history of compliance.
HMRC have made an effort to downgrade more subcontractors lately, but if the error is just a blip and you have a reasonable excuse for the error then there is a good reason to resist any attempts to do so.
If you have any queries about the construction industry scheme and would like some assistance in meeting your obligations, please feel free to give our team a call on 01223 929150.