I have worked in the accountancy profession since I was 18 years of age. I also had a 2 year spell, working in the tax department of a large Shipping Group in the early 1980s. At that time they were owned by a large construction company and that was when my involvement with construction industry tax first started and has remained ever since.
I have over the years written many articles on CIS tax and have lectured on the subject extensively and today, as part of ABG’s tax team, we have a strong CIS knowledge in our tax department.
On reflecting there are currently three areas in particular where we need to be very careful regarding CIS tax. These are:
- Are you really a CIS contractor?
- Is the subcontractor that you are engaging genuinely self-employed?
- Is that subcontractor performing ‘construction operations’ for you?
Can I now briefly deal with each of these in turn…
A CIS Contractor
The term ‘contractor’ includes any person carrying on a business which includes ‘construction operations’. Additionally, it includes a ‘deemed contractor’.
A deemed contractor could be a business not involved with construction such as a supermarket chain, a bank, a group of pubs, a big chemist outlet, breweries etc.
They can be a deemed contractor if their expenditure on construction operations (i.e. doing up their own premises) exceeds a certain specified limit (see below).
Changes introduced from 6th April 2021
These changes now require a business to consider and review its period 12 month period, to ascertain whether its cumulative construction expenditure has exceeded £3million (the new specified limit).
Before April 2021, a business was treated as a deemed contractor if it spent an average of £1million or more over a 3 year period on qualifying construction operations.
Businesses will no longer have to review the last 3 years. The revised CIS tax legislation now relates to a rolling cumulative 1 year period.
Accordingly, businesses will need to regularly monitor and review their construction expenditure, to see if they have exceeded this new £3millon construction limit.
If they have, they must immediately register as a contractor, with HMRC.
If you register late, then you will have missed out on filing monthly CIS contractor tax returns and big penalties could then be charged!
Tax in the construction industry, is the subcontractor truly self-employed?
The contractor must not control the subcontractor. Additionally, there must be no mutuality of obligations. Ideally, the subcontractor should also have the use of a substitute, of the same technical level as himself.
Ensure that the subcontractor pays public liability insurance. He should also have an agreement with the contractor that he will rectify mistakes in his own time, for no further payment.
These are strong self-employed factors!
The construction industry scheme applies when a subcontractor performs genuine construction operations for the contractor.
The term ‘construction operations’ is very widely defined in Section 74 Finance Act 2004. As a guide, it covers almost anything that is done to a permanent or temporary building, structure, works or civil engineering or installation including:
- construction, alteration, repair, extension, demolition or dismantling of buildings or structures
- construction, alteration, repair, extension or demolition of any works forming, or to form part of the land forming, or to form, part of the land
- installation (i.e. not repair) in any building or structure of systems ( note it has to be a system) of heating, lighting, air conditioning, ventilation, power supply, drainage, sanitation or fire protection
- internal cleaning of buildings and structures, so far as carried out in the course of their construction, alterations, repair, extension or restoration
- painting or decorating the internal or external surfaces of any building or structure.
CIS tax matters are notoriously complex. We have an experienced CIS tax team here at ABG, who can really help you and I will be presenting a live one hour CIS tax update webinar for ABG on Thursday morning 28th April commencing at 9am if you wish to register to join us you can do so here.