COMPLIANCE
the case, then (subject to the services falling within the definition of construction operations) the contractor must apply the CIS rules.
legislation or HMRC guidance which clearly states that deemed contractors whose expenditure on construction operations will be entirely exempted by Regulation 22 don’t need to register when they first exceed the deemed contactor threshold. What CIS obligations do contractors have?
“HM Revenue and Customs can go back six years to recover the construction industry scheme tax due from the contractor, together with penalty and interest charges”
4 ) Identify construction operations A contractor must consider whether
the services being performed by the subcontractor fall within the
definition of construction operations. The legislative definition is at Section 74(2) of the Finance Act 2004 (http:// ow.ly/4NAw50N7gAA) and is very widely drawn. Examples include (but aren’t limited to): l site preparation and demolition l installing systems of heating, lighting, air conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection l construction l alterations l dismantling l installing lifts l certain repairs and maintenance l painting and decorating. One challenge is that the definition of construction operations includes operations which are an integral part of, are preparatory to, or are for rendering complete, other construction operations. That can bring a multitude of other services within the scope such as plant hire, earthmoving, erection of scaffolding, cleaning, landscaping and the provision of roadways and other access works. Another challenge is that, where the contract includes both construction operations and non-construction operations (commonly referred to as a ‘mixed contract’), the contractor will be required to report and (where applicable) apply a CIS tax deduction to all contract payments within the contract. For example, carpet fitting in isolation doesn’t fall within the definition of construction operations. However, if carpet fitting is undertaken as a finishing operation on a wider construction project, or under a single contract which includes other services falling within the definition of construction operations such as painting and decorating, a contract payment for that carpet fitting will be within the scope of the CIS. 5 ) Verify subcontractors The contractor will need to verify each subcontractor’s registration status with HMRC before the first contract payment
Does the CIS only apply to construction businesses and property developers? No, the inclusion of deemed contractors means that non-construction businesses and certain other bodies whose annual expenditure on construction operations exceeds the deemed contractor threshold are within scope. Are only UK businesses and organisations caught? No. HMRC treats overseas contractors and subcontractors in the same way as if they were based in the UK. If a construction project is undertaken in the UK or within UK territorial waters, the CIS will need to be considered and potentially applied. Do deemed contractors need to apply CIS to construction expenditure on property they use in their own business? Under Regulation 22 of SI2005/2045 (Regulation 22), a payment made under a construction contract by a business treated as a deemed contractor isn’t regarded as a contract payment, where it’s made in respect of premises used for the purpose of the business of either: l the person making the payment; or l another company within the same group, or another company in which the business
1 ) Register as a contractor Timing of registration depends on the contractor type. Mainstream contractors must register for CIS before paying their first subcontractor. Deemed contractors must register only once they have exceeded, or are expected to exceed, the deemed contractor threshold, subject to a grace period of up to 90 days, which can be agreed with HMRC. 2 ) Consider the employment status of subcontractors engaged directly as individuals There’s a requirement for the contractor to determine whether the subcontractor has employment status, through undertaking a status assessment. If that status assessment shows the subcontractor is employed by the contractor, they should be placed on the payroll and income tax and class 1 National Insurance contributions must be applied under pay as you earn. CIS doesn’t then apply because an employment contract isn’t a construction contract under the CIS. If that status assessment shows the subcontractor is self-employed, then (subject to the services falling within the definition of construction operations) the contractor must apply CIS. 3 ) Consider whether the agency provisions or off payroll working regulations apply If a payment is to be treated as employment income under either the agency provisions or the off payroll working rules, the CIS doesn’t apply. If that isn’t
holds at least 50% of the shares. Based on HMRC’s guidance at
CISR12060, located here: http://ow.ly/ sJ3a50N7fWf, it’s possible for a deemed contractor to deregister as a contractor, where all payments made by them under a construction contract are entirely exempted from CIS under Regulation 22. Unfortunately, there’s nothing in the
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| Professional in Payroll, Pensions and Reward |
Issue 89 | April 2023
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