How do you de-register for CIS? Reply

Under the Construction Industry Scheme (CIS), contractors deduct money from a subcontractor’s payments and pass it to HM Revenue and Customs (HMRC).

The deductions count as advance payments towards the subcontractor’s tax and National Insurance.

Contractors must register for the scheme. Subcontractors don’t have to register, but deductions are taken from their payments at a higher rate if they’re not registered.

HMRC make it easy to join CIS but its hard to find the instructions on how to leave or cancel CIS.

For those who have struggled to find the instructions here they are

https://www.gov.uk/what-you-must-do-as-a-cis-contractor/tell-hmrc-about-changes

If you stop trading or using subcontractors

You must:

tell HMRC

stop filing monthly CIS reports

Do this even if you’ve stopped using subcontractors temporarily, for example because you’re using your own employees to carry out work.

In general I find a letter works best as you can send it recorded delivery and prove it was sent, you write to this address

National Insurance Contributions and Employers Office
HM Revenue and Customs
BX9 1BX

steve@bicknells.net

What if you fail to register for CIS Reply

The Construction Industry Scheme (CIS) applies to anyone who carries out construction work as a trade, in other words developers, contractors, building maintenance and repairs, decorating, property conversion, basically if you use sub-contractors to work on a building its probably within CIS. It does, however, exclude property investors (although this could change soon) and domestic householders.

Tax Aid have a good example of how it works

Rob is asked to undertake some repair work on Ben’s private house. He asks Wendy to help him with the electrical work. Wendy is working on a self-employed basis for this contract. Ben pays Rob without deduction of tax as Ben is a private householder. Rob then pays Wendy.

Rob should register under CIS as a contractor before making the payment to Wendy. Rob should ask Wendy for her UTR and check her CIS status with HMRC. He should then pay Wendy net of 20% tax or net of 30% tax depending on her status with HMRC (exceptionally, if Wendy is entitled to register with HMRC for gross payment, then HMRC would tell Rob that he can pay Wendy without deduction of tax; gross payment will only apply to larger businesses).

If HMRC advises Rob that Wendy is registered under CIS (but not for gross payment), then Rob will keep back 20% tax and pay this CIS tax across to HMRC on Wendy’s behalf.

If Rob failed to register as a contractor under the CIS scheme he could face very big penalties. These include a £3,000 fine for not keeping CIS records, and a £100 per month penalty per missed return (and returns are due monthly).

Failing to register for a number of years could lead to penalties in the tens of thousands of pounds. This can happen even when all the workers are registered as self-employed and have paid the tax due on their income.

In summary the penalties are:

The maximum penalty is currently £3,000 for failing to register then there are late filing penalties

How late the return is Penalty
1 day late £100
2 months late £200
6 months late £300 or 5% of the CIS deductions on the return, whichever is higher
12 months late £300 or 5% of the CIS deductions on the return, whichever is higher

For returns later than this, you may be given an additional penalty of up to £3,000 or 100% of the CIS deductions on the return, whichever is higher.

There is no lower limit for CIS registration and the penalties can be harsh as demonstrated in the cases below

Brian Parkinson a gardner and lanscaper who used occasional subcontractors and got £31,500 in CIS Penalties!

The FTT heard evidence that little or no loss of tax resulted from this omission, as the amount of tax Parkinson ought to have deducted under the CIS was put at £837.90. [Brian Parkinson and the Commissioners for Her Majesty’s Revenue & Customs TC04526; Appeal number: TC/2013/00224].
This comprised £6,000 (5 x the £1,200 maximum) charged under the Taxes Management Act 1970 (TMA 1970), s98A(2)(a) and also month 13 penalties of £25,500 charged under TMA 1970, s. 98A(2)(b). – See more at: https://www.accountancylive.com/partial-win-gardener-over-%E2%80%98excessive%E2%80%99-cis-penalties#sthash.zJA59Gjv.AfCNNGRJ.dpuf
Or how about CJS Eastern an installer of lightning conductors

INCOME TAX – subcontractors – appellant company contracted with a third party provider to supply “operatives” – third party provider “net” for CIS purposes – company’s failure to make CIS returns  – fixed monthly penalties of £28,500 – Month 13 penalties of £56,500 – whether reasonable excuse – held, no – whether disproportionate as a breach of A1P1 – Tribunal’s jurisdiction and interaction with mitigation –  Bosher followed – fixed penalties upheld – Month 13 penalties set aside as excessive – appeal allowed in part

https://cases.legal/lang-en/act-uk2-156151.html

If you work in construction make sure you register and comply with CIS!

steve@bicknells.net

How do you complete a Monthly CIS Return? 1

Under the Construction Industry Scheme (CIS), contractors deduct money from a subcontractor’s payments and pass it to HM Revenue and Customs (HMRC).

The deductions count as advance payments towards the subcontractor’s tax and National Insurance.

Contractors must register for the scheme. Subcontractors don’t have to register, but deductions are taken from their payments at a higher rate if they’re not registered.

Every month contractors have to file a CIS return online and issue Deduction Statements to Subcontractors.

But many people are confused as to what to put in the boxes on the return, below is the official guidance.

Deductions at the standard rate

Examples D1 to D3 show deductions at the standard rate of 20% which was the rate in force at the time of writing this guide.

Example D1

Where no materials are supplied (‘labour-only’)
A labour-only subcontractor does work on site for £200
Total payment £200
Amount deducted at 20% = £40
Net payment to subcontractor £160

The contractor calculates the deduction (£40), which has to be paid to our accounts office. The labour-only subcontractor receives the balance of £160.

Entries on the contractor’s monthly return

In example D1, the contractor should enter the following amounts in the appropriate boxes on the contractor’s monthly return:

Total payment £200
Direct cost of materials used £0
Amount deducted £40

Example D2

The following is an example of a calculation where materials as well as labour are supplied (‘supply and fix’) and the contractor has paid the subcontractor’s expenses.

Where the subcontractor isn’t registered for VAT, any VAT they had to pay on materials should be included in the cost of materials when calculating the CIS deduction.

Where expenses, for example accommodation, mobile phone and fuel costs are paid to the subcontractor, the amounts should be included in the subcontractor’s gross payment.

A tiling subcontractor, who isn’t VAT-registered, agrees to tile a wall and to supply the necessary materials for a total payment of £535. The materials cost the subcontractor a total of £235 (£200 + £35 for VAT). The subcontractor is also paid accommodation costs of £50 and fuel of £10.

Labour charge £300
Materials £235
Accommodation and fuel £60
Amount due (invoice amount) £595

Calculation of deduction

Total payment £595
Less cost of materials (inclusive of VAT) £235
Amount liable to deduction £360
Amount deducted at 20% £72
Net payment to subcontractor £523

The contractor deducts the cost of materials from the price for the whole job and calculates the deduction on the difference of £360. The contractor has to pay £72 to our accounts office and pays £523 (£595 – £72) to the subcontractor.

Entries on the contractor’s monthly return

In example D2, the contractor should enter the following amounts in the appropriate boxes on the contractor’s monthly return:

Total payment £595
Direct cost of materials used £235
Amount deducted £72

Example D3

The following is an example of a calculation where materials as well as labour are supplied (‘supply and fix’). Where the subcontractor is registered for VAT, any VAT they had to pay on materials should be excluded from the cost of materials when calculating the CIS deduction.

For the total cost of £600, a subcontractor who is a taxable person for VAT purposes, agrees to paint the interior of a building and to supply the materials. The painter pays £235 for the materials, which includes VAT of £35.

Labour charge £400
Materials £200
Total payment £600
Add VAT £105
Amount due (invoice amount) £705

Calculation of deduction

Total payment (exclusive of VAT) £600
Less cost of materials (exclusive of VAT) £200
Amount liable to deduction £400
Amount deducted at 20% £80
Net payment to subcontractor £625

The subcontractor is paid £625, which is the invoice amount (£705) less the deduction (£80).

Entries on the contractor’s monthly return

In example D3, the contractor should enter the following amounts in the appropriate boxes on the contractor’s monthly return:

Total payment £600
Direct cost of materials used £200
Amount deducted £80

Deductions at the higher rate

Examples D4 to D6 show deductions at the higher rate of 30%. This rate is used for illustration purposes and may or may not be the rate in force at the time of reading this guide.

Example D4

Where no materials are supplied (‘labour-only’)
A labour-only subcontractor does work on site for £200
Total payment £200
Amount deducted at 30% £60
Net payment to subcontractor £140

The contractor calculates the deduction (£60), which has to be paid to our accounts office. The labour-only subcontractor receives the balance of £140.

Entries on the contractor’s monthly return

In example D4, the contractor should enter the following amounts in the appropriate boxes on the contractor’s monthly return:

Total payment £200
Direct cost of materials used £0
Amount deducted £60

Example D5

The following is an example of a calculation where materials as well as labour are supplied (‘supply and fix’). Where the subcontractor isn’t registered for VAT, any VAT they had to pay on materials should be included in the cost of materials when calculating the CIS deduction.

A tiling subcontractor, who isn’t VAT registered, agrees to tile a wall and to supply the necessary materials for a total payment of £535. The materials cost the subcontractor a total of £235 (£200 + £35 for VAT).

Labour charge £300
Materials £235
Amount due (invoice amount) £535

Calculation of deduction

Total payment £535
Less cost of materials (inclusive of VAT) £235
Amount liable to deduction £300
Amount deducted at 30% £90
Net payment to subcontractor £445

The contractor deducts the cost of materials from the price for the whole job and calculates the deduction on the difference of £300. The contractor has to pay £90 to our accounts office and pays £445 (£535 – £90) to the subcontractor.

Entries on the contractor’s monthly return

In example D5, the contractor should enter the following amounts in the appropriate boxes on the contractor’s monthly return:

Total payment £535
Direct cost of materials used £235
Amount deducted £90

Example D6

The following is an example of a calculation where materials as well as labour are supplied (‘supply and fix’). Where the subcontractor is registered for VAT, any VAT they had to pay on materials should be excluded in the cost of materials when calculating the CIS deduction.

For the total cost of £600 a subcontractor, who is a taxable person for VAT purposes, agrees to paint the interior of a building and to supply the materials. The painter pays £235 for the materials, which includes VAT of £35.

Labour charge £400
Materials £200
Total payment £600
Add VAT £105
Amount due (invoice amount) £705

Calculation of deduction

Total payment (exclusive of VAT) £600
Less cost of materials (exclusive of VAT) £200
Amount liable to deduction £400
Amount deducted at 30% £120
Net payment to subcontractor £585

The subcontractor is paid £585, which is the invoice amount (£705) less the deduction (£120).

Entries on the contractor’s monthly return

In example D6, the contractor should enter the following amounts in the appropriate boxes on the contractor’s monthly return:

Total payment £600
Direct cost of materials used £200
Amount deducted £120

https://www.gov.uk/government/publications/construction-industry-scheme-cis-340/construction-industry-scheme-a-guide-for-contractors-and-subcontractors-cis-340#appd

steve@bicknells.net

 

What’s happening to CIS after April 2016? Reply

at a construction site

The changes are outlined in this document – CIS Link

Key Changes

  • Reducing the Gross Status minimum turnover threshold to £100,000 a year for businesses with multiple directors (from April 2016)
  • Initial and annual compliance tests will focus on fewer obligations
  • There will be further amendments to the need to submit Nil returns
  • It will be easier for Joint Ventures to obtain Gross Status if one party already holds Gross Status
  • Online verification will be mandatory from April 2017
  • Earlier repayments can be made to liquidators in insolvency proceedings. Currently where a subcontractor is a company, no repayment of any amount deducted and paid over to HMRC by a contractor can be made to the subcontractor until after the end of the tax year in which the deduction was made. These rules will be amended so that in certain cases where the amount deducted by the contractor is excessive, a repayment can be made during the tax year.
  • Mandatory online filing of CIS returns will be introduced with the offer of alternative filing arrangements for those unable to access an online channel by reason of age, disability, remote location or religious objection.
  • The directors’ self assessment filing requirements will be removed from the initial and annual compliance tests.
  • You must re-submit returns for any period that you amend

We await the budget on 16th March 2016 for full details.

steve@bicknells.net

Will CIS apply to my property ‘refurb’? do Landlords need to register? 1

Group of construction workers. House renovation.

Many small scale property developers don’t realise that the Construction Industry Scheme (CIS) applies to them.

HMRC are also looking very closely at Landlords (Investors) to see if they should register too…

Terrace Hill (Berkeley) Ltd v HMRC [2015] UKFTT 75 (TC) TC 04282

Until now property investment has been excluded from CIS but HMRC say this is under review

http://www.hmrc.gov.uk/manuals/cisrmanual/cisr12080.htm

For now let’s focus on Property Developers, here are a few facts:

  • Property development is a trade it includes building new buildings and improving or refurbing existing buildings
  • Property developers will be contractors because they employ subcontractors – bricklayer, carpenters, painters, electricians, plasterers etc
  • There is no lower limit below which you do not have to operate CIS
  • Subcontractors, especially Labour Only subcontractors need to have their employment status tested
  • Subcontractors need to be verified with HMRC to determine their tax status before they can be paid
  • Each month the Developer will need to file a return with HMRC of subcontractor deductions
  • Each month the subcontractors must be given a deduction statement
  • CIS applies to all types of Developer – Individuals, Partnerships and Companies

Failure to comply means big penalties

CIS Penalties

Here are some penalty horror stories!

Brian Parkinson a gardner and lanscaper who used occasional subcontractors and got £31,500 in CIS Penalties!

The FTT heard evidence that little or no loss of tax resulted from this omission, as the amount of tax Parkinson ought to have deducted under the CIS was put at £837.90. [Brian Parkinson and the Commissioners for Her Majesty’s Revenue & Customs TC04526; Appeal number: TC/2013/00224].
This comprised £6,000 (5 x the £1,200 maximum) charged under the Taxes Management Act 1970 (TMA 1970), s98A(2)(a) and also month 13 penalties of £25,500 charged under TMA 1970, s. 98A(2)(b). – See more at: https://www.accountancylive.com/partial-win-gardener-over-%E2%80%98excessive%E2%80%99-cis-penalties#sthash.zJA59Gjv.AfCNNGRJ.dpuf
Or how about CJS Eastern an installer of lightning conductors

INCOME TAX – subcontractors – appellant company contracted with a third party provider to supply “operatives” – third party provider “net” for CIS purposes – company’s failure to make CIS returns  – fixed monthly penalties of £28,500 – Month 13 penalties of £56,500 – whether reasonable excuse – held, no – whether disproportionate as a breach of A1P1 – Tribunal’s jurisdiction and interaction with mitigation –  Bosher followed – fixed penalties upheld – Month 13 penalties set aside as excessive – appeal allowed in part

https://cases.legal/lang-en/act-uk2-156151.html

If you’re a property developer make sure you register for CIS with HMRC!

If you need help contact us

steve@bicknells.net

 

 

Improvements to the Construction Industry Scheme (CIS) Reply

fotolia_1931265[1]

CIS covers most construction work to buildings, including site preparation, decorating and refurbishment.

Exceptions

You don’t have to register if you only do certain jobs, including:

  • architecture and surveying
  • scaffolding hire (with no labour)
  • carpet fitting
  • delivering materials
  • work on construction sites that is clearly not construction, eg running a canteen or site facilities

 

So what is being changed?

The changes are outlined in this document – CIS Link

Key Changes

  • Reducing the Gross Status minimum turnover threshold to £100,000 a year for businesses with multiple directors (from April 2016)
  • Initial and annual compliance tests will focus on fewer obligations
  • Penalties triggered by failure to file a nil CIS return can be set aside on appeal from April 2015
  • It will be easier for Joint Ventures to obtain Gross Status if one party already holds Gross Status
  • Online verification will be mandatory from April 2017
  • Earlier repayments can be made to liquidators in insolvency proceedings. Currently where a subcontractor is a company, no repayment of any amount deducted and paid over to HMRC by a contractor can be made to the subcontractor until after the end of the tax year in which the deduction was made. These rules will be amended so that in certain cases where the amount deducted by the contractor is excessive, a repayment can be made during the tax year.
  • Mandatory online filing of CIS returns will be introduced with the offer of alternative filing arrangements for those unable to access an online channel by reason of age, disability, remote location or religious objection.
  • The directors’ self assessment filing requirements will be removed from the initial and annual compliance tests.

steve@bicknells.net

HMRC – The odd case of Coffey Builders – Employment Status Reply

I was reading Tips & Advice Tax – Issue 17 and they highlight an unusual piece of new case law T Coffey/Dr Selvarajan and HMRC.

TC was a retired builder who was asked by S to manage and supervise the refurbishment of his medical clinic, the project lasted over 2 years. No substitutes were allowed, S guaranteed payment, there was no contract, TC worked regular hours and he was paid a rate of £500 per week. Sounds a lot like employment doesn’t it?

But HMRC decided to argue that he was self employed and undermined the importance of the factors that would make him employed.

Very interesting.

Steve@bicknells.net

 

 

Self Assessment Tips for Subcontractors 3

The construction industry has a large number of self employed subcontractors covering most trades, they often work for a variety of Contractors on multiple sites, which generally means that each year they need help with their self assessment returns.

Here are some suggestions to help:

1. If you are paid net of deduction makesure you have a complete set of Payment Deduction Statements http://www.hmrc.gov.uk/forms/cis-payment-deduction-statement.pdf these statements show how much tax has been deducted and you will be able to use these statements to reclaim that tax on your self assessment return, often the CIS deductions will mean that too much tax has been paid

2. Travel – Self employed workers claim all of their travel and motoring costs and exclude a % for private use

3. Clothing & PPE – gather together all the receipts you have for specialist clothing and PPE

4. Vehicles, Tools, Plant and Equipment – these items of expenditure may be eligible for Capital Allowances and the Annual Investment Allowance (£25,000 for 2012/13) if you have any private use then this will need to be assessed and excluded

5. Other Expenses – You will need details of Insurance, Accountancy, Materials, Bank Charges, Phones, Stationery, and anything else you spent money on

It might seem boring but collecting the information noted above could save you thousands.

steve@bicknells.net