Reverse Charge for the Construction Industry starts in October 2019, its complicated and will be confusing!
Read our 2 page fact sheet to understand how you need to account for VAT.
The new rules will affect Subcontractors and Contractors.
Click here to get the factsheet
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  UKFTT 75 (TC) TC 04282
Until now property investment has been excluded from CIS but HMRC say this is under review
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
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].
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
If you’re a property developer make sure you register for CIS with HMRC!
If you need help contact us
CIS covers most construction work to buildings, including site preparation, decorating and refurbishment.
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
- 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.