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M Y CONSULTANCY SUFFOLK BRANCH CIS UPDATE MIKE EVANS Employment Taxes & CIS Consultant 13 June 2012.

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Presentation on theme: "M Y CONSULTANCY SUFFOLK BRANCH CIS UPDATE MIKE EVANS Employment Taxes & CIS Consultant 13 June 2012."— Presentation transcript:

1 M Y CONSULTANCY SUFFOLK BRANCH CIS UPDATE MIKE EVANS Employment Taxes & CIS Consultant mikeedevans@aol.com 13 June 2012

2 M Y CONSULTANCY Introduction HMRC’s Construction Industry Scheme is a “tax deduction scheme” covering payments made by Contractors to Subcontractors It only applies to work that falls within the scope of the scheme CIS requires a tax deduction to be made by a contractor when making a payment to a subcontractor but only for work that comes within the scope of the scheme CIS Regulations provide for gross payment, without a tax deduction, where the subcontractor has satisfied an HMRC officer that ‘gross payment status’ should be granted

3 M Y CONSULTANCY Introduction The first Construction Industry Tax Deduction Scheme was introduced in 1972 because the Inland Revenue deemed it to be a ‘high risk’ Industry: Transient workforce Payments in cash Industry reports of dubious and poor business practices In the 70’s the transient workforce was mainly from the Irish Republic, but today many workers come from the EU! Major changes were introduced in the 1999 Scheme The current scheme started on 6 April 2007

4 M Y CONSULTANCY Introduction The current scheme has worked well with few changes The major change was to the unfair penalty structure with a new Penalty Regime operating from 5 November 2011 Additional security checks were introduced in February 2011 On 31 August 2011 new guidance was issued about mainstream and ‘deemed’ contractors On 21 May 2012 HMRC issued guidance and a new leaflet about Limited Companies setting off CIS deductions Contractors and subcontractors are still getting it wrong! What are the main obligations to comply with CIS

5 M Y CONSULTANCY Introduction Contractor obligations include: verifying your subcontractors with HMRC paying your subcontractors in the right way - making deductions if necessary paying over deductions to HMRC giving subcontractors deduction statements sending monthly returns to HMRC keeping proper records

6 M Y CONSULTANCY Introduction Subcontractor obligations include: Registering for CIS with HMRC or suffering 30% deductions Giving accurate information to Contractors to enable the Contractor to verify the tax payment status of the subcontractor Keeping proper records and being up to date with certain obligations that are specifically required by Gross Payment subcontractors to satisfy the ‘Compliance Test’

7 M Y CONSULTANCY Introduction The requirement to make a tax deduction applies to all workers and businesses within CIS and is not limited to: Foreign workers, or Individual (‘the men’) subcontractors, or Wages paid to workers Tax deduction applies to all businesses of all sizes! Tax deductions may have to be made from businesses paid through the purchase ledger, as well as through wages! Unless the individual or business has been registered for Gross Payment under CIS

8 M Y CONSULTANCY Introduction Problems continue with businesses that fail to register as a Contractor compounded by: Failure to verify self-employed subcontract workers Failure to make deductions from the workers Failure to submit monthly CIS300 returns Including Nil returns Penalties will be charged The income tax not deducted may be recovered Subcontractor Gross Payment status may be withdrawn

9 M Y CONSULTANCY DEFINITION OF A CONTRACTOR Section 59 (1) refers to ‘any person carrying on a business which includes construction operations’ CIS340 - ‘a business or other concern that pays subcontractors for construction work’ Joint ventures may be contractors and will be required to operate CIS Householders are not contractors and payments made by householders are outside the scope of CIS

10 M Y CONSULTANCY WHO IS NOT A CONTRACTOR? The Householder paying our client is not a Contractor and does not have to operate CIS, BUT Our Builder Client is a Contractor if he is making payments for ‘construction operations’ to any self- employed workers The self-employed workers are subcontractors within CIS

11 M Y CONSULTANCY ARE THEY CONTRACTORS? Either of them could be a Contractor if paying the other to do ‘construction work’

12 M Y CONSULTANCY ARE THEY CONTRACTORS? They will not be contractors if they work as a Partnership and will be outside CIS if they only do work for domestic customers and non-CIS businesses

13 M Y CONSULTANCY WHO ELSE IS A CONTRACTOR Subcontractors who pay other self-employed workers are Contractors within CIS and they need to: Register as a Contractor Verify the subcontractors Make deductions from the subcontractors, if necessary

14 M Y CONSULTANCY WHO ARE SUBCONTRACTORS? Section 58 FA 2004 states that: ‘For the purposes of this Chapter a party to a contract relating to construction operations is a sub-contractor if, under the contract – He is under a duty to the contractor to carry out the operations, or to furnish his own labour (in the case of a company, the labour of officers or employees of the company) or the labour of others in the carrying out of the operations or to arrange for the labour of others to be furnished in the carrying out of the operations; or He is answerable to the contractor for the carrying out of the operations by others, whether under a contract or under other arrangements made or to be made by him.’

15 M Y CONSULTANCY WHO ARE SUBCONTRACTORS? CIS340 refers to a subcontractor as a person or body that has agreed to carry out construction operations for a contractor Based on the legislation, the subcontractor may be carrying out the operations in a number of ways, including: carrying out the operations themselves, or having the operations done by their own employees or by other subcontractors they engage to do the work

16 M Y CONSULTANCY WHO IS NOT A SUBCONTRACTOR? He isn’t if the terms and conditions of his ‘engagement’ amount to an employment The first check of a new worker is their employment status

17 M Y CONSULTANCY CIS RECORD KEEPING HMRC expects contractors to record details of: Gross amount of each subcontractor - excluding VAT Amount of any deduction made from a subcontractor payment Amount of any materials costs - excluding VAT HMRC will check these records from time to time Records must be kept for at least three years after the end of the tax year they relate to Contractors must make the records available and provide facilities needed to look at them HMRC may ask for full sized copies Records can be archived on an imaging system like microfiche providing an unchanged image of the originals is kept

18 M Y CONSULTANCY CONTRACTOR REGISTRATION Contractors must register with HMRC to operate CIS if they come within the scope of the scheme Failure to register will result in penalties being charged! Contractor Reference number required to register New contractors must register with HMRC Before engaging the first subcontractor Registration required for new and changed businesses Joint ventures should register Sole traders forming a Partnership must register Sole traders or Partnerships changing to limited must register

19 M Y CONSULTANCY CONTRACTOR REGISTRATION Contractors can register: New employer by email through HMRC’s website http://www.hmrc.gov.uk/cis/contractors/reg-obs.htm By calling HMRC’s New Employers Helpline: Telephone 0845 607 0143 Open from 8.00 am to 8.00 pm - Monday to Friday Open 8.00 am to 5.00 pm on Saturday and Sunday Non UK-resident businesses should contact: HMRC’s Centre for Non-Residents Telephone +44 151 210 222

20 M Y CONSULTANCY CONTRACTOR REGISTRATION Information needed to register: Unique taxpayer reference (UTR) National Insurance number (NINO) of any sole trader, individual partners or directors Registered business name and contact details Tick the box to confirm engagement of construction industry subcontractors HMRC says online email submission is secure HMRC will set up a Contractor scheme and a PAYE scheme if requested

21 M Y CONSULTANCY SUBCONTRACTOR REGISTRATION Subcontractor registration for CIS not compulsory, but Contractors must deduct 30% from payments to any subcontractor that has not registered for CIS New subcontractors should register before starting work in the Construction Industry or 30% deductions will be made If already registered for Self-Assessment subcontractors can register by calling HMRC’s helpline Telephone 0845 366 7899 (Option 1)

22 M Y CONSULTANCY SUBCONTRACTOR REGISTRATION Information needed to register: Unique taxpayer reference (UTR) National Insurance number (NINO) for sole trader, individual partner or a director Business name and up to one trading name NINO needed to register Contact DWP 0845 600 0643 Evidence of identity interview at JobCentre Plus Office HMRC require a NINO before issuing a UTR

23 M Y CONSULTANCY SUBCONTRACTOR REGISTRATION Regulation 25 sets out the documents, records and information that an officer of the Board may require to establish the identity of the subcontractor These are: Birth certificate Name, address, NINO and UTR Utility bills Council tax bills Current passport Driving licence Company registration number Company’s memorandum and articles of association

24 M Y CONSULTANCY GROSS PAYMENT REGISTRATION Conditions to qualify for Gross Payment There are three specific tests to be satisfied: The business test Carries out construction work or provides labour for construction work in the UK The business is run largely through a bank account The Turnover test Ignoring VAT and materials, construction turnover must be at least: £30,000 for a sole-trader £30,000 for each partner in a partnership (or £200,000 for the whole partnership) £30,000 for each director of a company (or £200,000 for the whole company), AND

25 M Y CONSULTANCY GROSS PAYMENT REGISTRATION The Compliance test looking at the level of compliance in the previous 12 months Compliance by the business and its proprietors Completed and returned all required tax returns Supplied any tax information requested by HMRC Paid by the due dates All tax due from the subcontractor and the business Any NICs due from the subcontractor Any PAYE tax and NICs due as employer Any deductions due from the subcontractor as contractor

26 M Y CONSULTANCY GROSS PAYMENT REGISTRATION Not every failure will lead to refusal of gross payment HMRC will ignore the following failures in the 12 month period of review: Three late CIS300 monthly returns up to 28 days late Three late payments of CIS/PAYE up to 14 days late One late payment of self-assessment tax up to 28 days late Any employer’s end of year return made late Any late payment of CT up to 28 days late Any self-assessment return made late Any payment not made by the due date Where it is less than £100

27 M Y CONSULTANCY GROSS PAYMENT REGISTRATION Notice of refusal issued if conditions not met Subcontractor has the right of appeal If subcontractor loses gross payment status Must apply for registration as if a new applicant Subcontractor cannot re-apply until 12 months after the cancellation has become effective Re-apply 12 months after the appeal is determined and the notice becomes effective Consider whether to appeal or accept punishment?

28 M Y CONSULTANCY GROSS PAYMENT CANCELLATION First tier Tribunal decision in HMRC v Scofield Judge said the CIS legislation states; ‘the Board of Inland Revenue may at any time make a determination cancelling a person’s registration for gross payment….’ Inclusion of the word ‘may’ indicated that HMRC should demonstrate they have exercised discretion before notifying a business of their intention to remove gross payment status, which they had not done in that case

29 M Y CONSULTANCY GROSS PAYMENT CANCELLATION HMRC now write to businesses failing the annual review to ask whether they believe they have any mitigating circumstances for the failure If there is a reasonable excuse at that stage HMRC will allow gross payment status to continue If there is no reasonable excuse or if no response is forthcoming HMRC will then notify the business that gross payment will be removed

30 M Y CONSULTANCY PAYING SUBCONTRACTORS How does a Contractor make payments to subcontractors? The monthly return declaration states that “Every subcontractor included on this return, and any continuation sheets, has either been verified with HMRC or has been included in previous CIS returns in this or the previous two tax years.” Every New Subcontractor must be verified before the first payment is made to the subcontractor to determine the rate of deduction to be made, if any! Failure to verify is another problem area!

31 M Y CONSULTANCY PAYING SUBCONTRACTORS No need to verify before every payment No need to verify any subcontractor previously paid in the current tax year (included on CIS300 return), or In the two previous tax years (6 April 2010 to 5 April 2012) Do not ‘assume’ that any subcontractor can be paid gross, perhaps because they are a bigger business Remember that all New Subcontractors must be verified before the first payment is made How do we verify Subcontractors?

32 M Y CONSULTANCY PAYING SUBCONTRACTORS Contractor to contact HMRC to verify a subcontractor Contractor must not accept subcontractor assurance Options for HMRC verification: By telephone: 0845 366 7899 (Option 2) By internet at www.hmrc.gov.uk/new-ciswww.hmrc.gov.uk/new-cis Using third party software or EDI HMRC checks the subcontractor’s payment status HMRC advises the contractor to pay gross, at standard rate (20%) or higher rate (30%)

33 M Y CONSULTANCY PAYING SUBCONTRACTORS When HMRC confirms Gross Payment or that tax should be deducted at the standard (20%) rate Print a copy of the online notice to keep on file, or Keep a written record of the telephone call (date, time and payment advice) Whenever HMRC confirms a 30% deduction Go back to the subcontractor and check the details Before making the payment No match may mean the wrong name or number Re-verify if correct details provided

34 M Y CONSULTANCY PAYING SUBCONTRACTORS VERIFICATION REFERENCE NUMBERS When HMRC verifies a subcontractor a verification reference number will be issued The same number will be used for each of the subcontractors verified at the same time For example 5 subcontractors successfully verified and HMRC issues reference number: V0001234567

35 M Y CONSULTANCY PAYING SUBCONTRACTORS VERIFICATION REFERENCE NUMBERS Example where 4 of 5 subcontractors successfully verified and one cannot be verified HMRC then issues the same reference number, but makes it ‘unique’ by adding an A V0001234567/A The verification number Must be noted to be entered on both the monthly return, and The subcontractor’s payment statement

36 M Y CONSULTANCY DEDUCTIONS FROM PAYMENTS CIS is a tax deduction scheme and tax must be deducted from all payments to subcontractors except those individuals and businesses that are registered for gross payment Deductions of 20% should be made from subcontractors registered for standard rate deductions Deductions of 30% should be made when HMRC notifies higher rate deduction on verifying a new subcontractor Deductions of 30% should be made if the rate is not known Deductions may not be due from all the payment due to a subcontractor registered for payment under deduction Contractors must consider what the payment is made up of?

37 M Y CONSULTANCY DEDUCTIONS FROM PAYMENTS Deduction is required from any labour element, but CIS340, Page 18, paragraph 2.39 states: The deduction does not apply to any part of a payment that is for the cost of the following: Materials Value Added Tax (VAT) An amount equal to the CITB levy HMRC officers are challenging Contractors about the amounts treated as cost of materials and asking for evidence to justify the amounts from which deductions have not been made

38 M Y CONSULTANCY DEDUCTIONS FROM PAYMENTS CIS340, Page 18, paragraph 2.38 states that: The deduction does apply to any part of a payment that is for subsistence or travelling expenses Any such payment should be included in the gross amount to be reported on the CIS monthly return and A deduction of 20% should be made and paid over to HMRC Problems continue to arise where Contractors are failing to deduct from the travel and subsistence element HMRC officers are recovering the amount under deducted

39 M Y CONSULTANCY DEDUCTIONS FROM PAYMENTS Example – Dave pays on monthly invoices that always include 50% for materials, but he does not support this with any documentation or explanation? HMRC says that Contractors: Can ask for evidence of the cost Must make a fair estimate of the cost and if a subcontractor does not provide the evidence Contractors must always check, if possible, that materials are not overstated CIS340, Page 27, paragraph 3.23!

40 M Y CONSULTANCY PAYING SUBCONTRACTORS Contractors must provide a written payment statement to every subcontractor paid under deduction Within 14 days of end of tax month (by the 19 th ) Statements can be given to subcontractors on the basis of one for each tax month or one for each payment, if more frequent No set format but the information to be provided should include: Contractor’s name/reference & end date of tax month Subcontractor name, UTR & payment details Unique verification number if higher rate deducted Can include additional information e.g. VAT

41 M Y CONSULTANCY ABC Contractor Ltd 0 6 2 0 1 2 1 2 3 C 4 5 6 7 8 9 56 High Street 9 9 8 8 7 5 5 4 4 5 MY Subcontractors Ltd 6 4 0 0 6 0 0 0 4 0 0 1 2 0 0 5 2 0 0

42 M Y CONSULTANCY CIS300 MONTHLY RETURNS Having paid subcontractors the next important obligation of the Contractor is to report the amount paid to HMRC Regulation 4 requires a return in a document or format provided by HMRC and no substitute forms are permitted Monthly returns are required, including Nil returns Contractors must submit a complete return of all payments made to all subcontractors within the Scheme in the preceding tax month Whether paid gross or under deduction

43 M Y CONSULTANCY CIS300 MONTHLY RETURNS HMRC says that ‘some contractors believe the monthly return is only for reporting payments to subcontractors paid under deduction and they do not include gross paid subcontractors on the returns.’ CIS300 monthly returns apply to all payments made to all subcontractors within the Scheme! Penalties will be charged for incorrect returns!

44 M Y CONSULTANCY CIS300 MONTHLY RETURNS Paragraph 5, Regulation 4 stipulates that the return must include a declaration by the person making the return: (a) that none of the contracts to which the return relates is a contract of employment; b) indicating whether he has complied with the requirements of regulation 6 (verification) for each person to whom a payment to which the return relates is made; and c) that the return contains all the information, particulars and supporting information required by this regulation to be included in the return, and such information, particulars and supporting information are complete and accurate to the best of the contractor's knowledge and belief.

45 M Y CONSULTANCY CIS300 MONTHLY RETURNS Regulation 4 (1) requires that the monthly returns must reach HMRC within 14 days of the end of the tax month to which they relate Example Return of all payments made to subcontractors between 6 May 2012 and 5 June 2012 must be sent in sufficient time to arrive by 19 June 2012 N.B. No extension to 22 nd for electronic CIS returns

46 M Y CONSULTANCY CIS300 MONTHLY RETURNS Submission options: Internetwww.hmrc.gov.uk/new-cis Electronicallyusing EDI or third party software Post: Construction Industry Scheme Comben House, Farriers Way, Liverpool, L75 1HL Software must be approved by HMRC Third party software may allow Contractor to integrate subcontractor recording within the company accounting systems (purchase ledger) Most stand alone software produce payment and deduction statements for subcontractors

47 M Y CONSULTANCY PAPER MONTHLY RETURNS No compulsion to submit CIS returns online Contractors can choose to use paper returns and many still do! HMRC sends partially completed returns To arrive by the last day (5 th ) of the tax month they relate to Pre-populated to include names and taxpayer references of All subcontractors previously returned or newly verified Within the last three months Do not amend pre-printed items on the returns Returns must be sent unfolded in HMRC envelopes and with correct postage

48 M Y CONSULTANCY “NIL” MONTHLY RETURNS Contractors who have not paid subcontractors in any month must still submit a “nil” return This is one of the major failures that result in penalties being charged There are four ways to do this: Internet www.hmrc.gov.uk/new-cis Telephone 0845 366 7899 (Option 3) Electronically using EDI or third party software Complete the section on the monthly return

49 M Y CONSULTANCY “NIL” MONTHLY RETURNS There is an option to notify HMRC that no further payments will be made in the coming months HMRC will then suspend the issue of CIS monthly returns for the next 6 months Contractors must notify HMRC if the situation changes e.g. payments are made, and HMRC will restart the issue of paper returns

50 M Y CONSULTANCY Construction Operations

51 M Y CONSULTANCY Construction Operations Examples of types of construction work covered by the scheme include jobs like: site preparation general construction - bricklaying, roofing, plastering etc. alterations and extensions repairs and refurbishment decorating dismantling work and demolition

52 M Y CONSULTANCY Construction Operations Construction is a term with a broad meaning that includes: building things making things putting things together assembling things Construction work includes, for example, assembling prefabricated units and site facilities that have been made off-site

53 M Y CONSULTANCY Construction Operations The Scope of CIS and what constitutes Construction Operations is defined in Section 74 Finance Act 2004 HMRC Guidance is available on its website, and In the Booklet CIS340 Appendix A – Scope of Construction Operations Appendix B – Section 74 Finance Act 2004 Appendix C – Guidance on operations included and excluded HMRC’s Construction Industry Scheme Reform Manual provides more detailed guidance

54 M Y CONSULTANCY HMRC GUIDANCE

55 M Y CONSULTANCY HMRC CIS340 GUIDANCE

56 M Y CONSULTANCY HMRC CIS340 GUIDANCE

57 M Y CONSULTANCY HMRC CIS340 GUIDANCE

58 M Y CONSULTANCY CIS Reform Manual CISR14080Artistic worksCISR14080 CISR14090Building service systemsCISR14090 CISR14100Buildings and structuresCISR14100 CISR14110CleaningCISR14110 CISR14120CommissioningCISR14120 CISR14130Computer and telephone networksCISR14130 CISR14140FencingCISR14140 CISR14150Fixed furnitureCISR14150 CISR14160Fire protection systemsCISR14160 CISR14170Floor coveringsCISR14170 CISR14180Improvement and housing grantsCISR14180 CISR14190Industrial plantCISR14190 CISR14200LandscapingCISR14200 CISR14210LocksmithsCISR14210 CISR14220Manufacture and deliveryCISR14220 CISR14230Mineral extractionCISR14230 CISR14240Preparatory, integral and finishing operationsCISR14240 CISR14250Painting or decoratingCISR14250 CISR14260Plant hireCISR14260 CISR14270Professional workCISR14270 CISR14280Seating, blinds and shuttersCISR14280 CISR14290Security systemsCISR14290 CISR14300Sign writing and signboardsCISR14300 CISR14310Electronic communications apparatusCISR14310 CISR14320Works forming part of the landCISR14320 CISR14330Index of construction operationsCISR14330

59 M Y CONSULTANCY Construction Operations CIS only applies to Construction Operations carried out in the United Kingdom and its territorial waters CIS does not apply to work outside the UK A British Company working in the Channel Islands does not have to operate the Scheme on payments made for work in the Channel Islands A Foreign company carrying out Construction Operations in the UK, or supplying labour to carry out Construction Operations in the UK, will have to operate the Scheme

60 M Y CONSULTANCY Construction Operations Work specifically excluded from CIS includes: professional work, like architects' services scaffolding hire - with no labour fire alarm installation carpet fitting but not any other flooring manufacturing things like windows, blinds and shutters off-site making and putting up signs delivering materials

61 M Y CONSULTANCY Construction Operations Providing services for workers on a construction site isn't a construction operation Neither is the provision of facilities needed for operating the site. Some examples include: workers' canteens workers' hostels temporary offices for site workers temporary toilets and showers for workers medical facilities safety services security patrols

62 M Y CONSULTANCY Construction Operations Landscaping is work that is normally outside of the Scope of CIS, but comes within CIS: When part of the finishing operation When undertaken following demolition When it is tree felling for site clearance Where turf laying is part of the construction works Landscaping is an excluded operation when it is: Routine work not undertaken as part of construction Construction of a golf course (not including the Club House) Not when part of the construction of the buildings

63 M Y CONSULTANCY Construction Operations Some cleaning falls to be included within CIS: Internal cleaning when carried out during or to complete the construction works Clearance of sewage pipes on completion of construction Road sweeping as part of construction Such as to prepare for another layer Cleaning excluded from CIS: External cleaning of buildings and structures Road sweeping after construction is completed Cleaning of Show Houses

64 M Y CONSULTANCY Construction Operations The making, installation and repair of artistic works that are wholly artistic in nature are excluded from CIS: sculptures murals other works serving a wholly artistic purpose The exclusion does not apply to artistic works that are functional stained glass windows ornamental gates, balustrades decorative tiling decorative paintwork (gold leaf work/painting on a banister), dado rails, skirting boards, ceiling rose/cornices, architraves ornamental fountains that may require foundation work, installation of a water supply source and associated pipe-work, installation of electrical power source for water pumps and/or lighting

65 M Y CONSULTANCY Construction Operations Painting or decorating the internal or external surfaces of any building or structure is within CIS Painting is the application of a decorative or protective film to a surface Within CIS paint application, including gilding or gold leaf work to the building or structure varnishing French polishing of fixed furniture or woodwork certain types of damp-proofing treatments ceiling masonry Excluded from CIS pesticide spraying including insecticidal or pesticidal wood treatment off-site French polishing Off-site work of restoration or repair may also be excluded

66 M Y CONSULTANCY Construction Operations Professional work? We cannot assume that all professional work is excluded Advisory work and consultancy advice normally excluded Managing the Construction and doing technical work may be included within CIS, as will: an architect also acting as a developer professionals whose work involves project management or supervision other than architects and surveyors site foremen clerks of works engaged in a supervisory capacity Employed foremen, Clerks of works outside CIS

67 M Y CONSULTANCY Professional work? The following operations are excluded from CIS: 'the professional work of architects or surveyors, or of consultants in building, engineering, interior or exterior decoration or the laying-out of landscape' Note that this exclusion does not apply to all 'professionals' involved in construction projects on a self-employed basis It applies to surveyors and architects even though their professional disciplines do or may include supervisory or executive function or responsibility The work of architects or surveyors, if done within their normal professional discipline, is excluded in all circumstances

68 M Y CONSULTANCY Professional work? It will only apply to other professionals whose services are consultative, not executive (standing apart from the execution of construction work or its management) Other professionals are 'consultants' if they supply technical advice, assessments, plans or designs, but are not involved in the day-to-day execution or oversight of a construction project A consulting engineer, interior decorator or draughtsman providing a design are regarded as Consultants as they are not in the chain of command running from contractor to the worker They provide designs, advice or recommendations that are acted upon by others accountable to the main contractor

69 M Y CONSULTANCY Professional work - Surveyors Exclusion covers traditional functions of surveying land/inspecting properties Extends to subcontractors performing specialised functions such as: soil testing industrial radiography non-destructive testing welding inspection environmental testing pipeline inspection (using, for instance, robot vehicles, known as 'pigs'). If the survey goes beyond inspection to include carrying out remedial work the exclusion no longer applies Robot surveys pipeline internally and makes good defective joints If a surveyor engages labour on subcontract terms to carry out work such as digging an inspection trench for the survey or boring for soil samples That work is treated as part of the professional work, not subject to CIS

70 M Y CONSULTANCY Construction Operations - Fencing Erection of fencing may be within CIS: Construction of structures, or Construction of any works forming part of the land, or Operations which are for rendering complete other construction operations If erected as part of a wider project of construction to enclose gardens on a newly-constructed housing estate If erected as an isolated operation and is a heavy duty structure where the main supporting posts are installed in a concrete foundation

71 M Y CONSULTANCY Construction Operations - Fencing Erection of fencing may be excluded from CIS If the fencing is erected as an isolated operation and is a light duty structure where the supporting posts are simply driven into the ground Security fencing will not be excluded Security fencing is not excluded as a 'security system' It is a normal feature of a building and its surrounds It is not accepted as a 'system'

72 M Y CONSULTANCY Construction Operations Mixed Contracts If there is a single contract that covers construction operations and non-construction work HMRC will treat the whole contract as being within CIS HMRC will do this even if separate invoices are issued A Single contract for construction and non construction operations means that everything is within CIS (One in, all in!) Separate contracts should therefore be considered Some main contractors will not agree!

73 M Y CONSULTANCY Construction Operations - Disputes Does the supplier/subcontractor object to a deduction being made? Does the supplier/subcontractor insist that the work is outside the Scope of CIS? Does the supplier/subcontractor refuse to register for CIS? We must always remember that our Contractor Clients are the ones that are potentially liable for failing to operate the Scheme and/or make CIS deductions We should also remember that the Subcontractor will be able to claim the tax deducted back by set-off or repayment

74 M Y CONSULTANCY Construction Operations - Disputes Contractors should make a deduction from the non-materials element of the invoice if in any doubt as to whether the work is in or outside CIS Contractors should not accept copies of HMRC letters issued to the subcontractor if there is any doubt as to whether the work is in or outside CIS But keep a copy of any letter that has been relied upon! No procedures exist for resolving a dispute between the Contractor and HMRC HMRC will issue a Regulation 13 determination on the tax not deducted and the Contractor can then appeal

75 M Y CONSULTANCY Construction Operations - Disputes HMRC guidance should be sought, initially checking the CIS340 and/or CIS Reform Manual Call the Helpline (0845 366 7899) Make a note of the date, time, person spoken to and the decision! Most disputes are easily resolved but some are more difficult Precise details of the work to be carried out will need to be provided to HMRC, perhaps in writing (keep copies) HMRC may ask for a copy of the Contract HMRC guidance indicates that the contractor's Processing Office should be responsible for the final decision on any dispute (they may seek higher technical advice)

76 M Y CONSULTANCY Construction Operations Domestic Customers One problem area encountered by AAT members is where the work is carried out for a domestic customer, and The Client builder or craftsman does not normally operate in the Construction Industry The Client builder or craftsman is not CIS registered Ordinary householders having work done on their own property e.g. decoration, repairs or an extension are not Contractors and do not have to operate CIS and make deductions from payments

77 M Y CONSULTANCY Construction Operations Domestic Customers However, the builder or tradesman doing that work is a Contractor to whom CIS applies if engaging self- employed workers to do any of the work How many of our clients are totally unaware of their CIS responsibility? Some businesses get around the problem by getting the householder to pay the subcontractor directly for the ‘fitting’ of the kitchen etc. The contract with the Customer should stipulate that

78 M Y CONSULTANCY Thank you


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