Construction Industry Scheme

7/27/2019 Construction Industry Scheme

1/85

ConstructionIndustryScheme

Guideforcontractorsandsubcontractors

CIS340


2/85

Contents

1IntroductiontotheConstructionIndustryScheme(CIS)WhatistheConstructionIndustryScheme? 5Whattypesofworkarecoveredbythescheme? 5Whattypesofbusinessesarecoveredbythescheme? 6Howtheschemeoperates 7Doestheschemeapplytoemployees? 8Canasubcontractorapplytobepaidgross? 9How

do

subcontractors

pay

tax?

9

Cansubcontractorssetoffdeductions? 9Registeringforthescheme- contractors 10

Registeringforthescheme- subcontractors 10

Thisbookletisavailableinlargeprint.IfyouwouldlikeacopypleasecontactyourHMRevenue&Customsoffice.CISHelplineminicom08453667894YrIaithGymraeg/Welshlanguage.Ffoniwch08453021489idderbynfersiynauCymraegoffurflenniachanllawiau.

2ThetermsusedundertheschemeIntroductiontothekeyterms 11Contractor 11Exceptionstotheschemeforcontractors 13Subcontractors 15Payments 17Deductions 18Contracts 18Constructionoperations 18

3HowpaymentsaremadetosubcontractorsTheverificationprocess 20Futureverification 26Changingasubcontractorspaymentstatus 26Makingapaymentunderdeduction 27Providingdocumentaryevidenceofadeduction 28Towhomshouldpaymentsunderdeductionbemade? 29Keepingrecordsofpayments 29Summaryofproceduresformakingpaymenttoasubcontractor 29/30

2


3/85

CIS340 ConstructionIndustryScheme

Contents(continued)

4WhatwerequirefromcontractorsMonthlyreturns 31Correctingerrorsonmonthlyreturns 33Makingpaymentstous 36Companiessettingoffdeductions 37EmployerAnnualReturn- formP35 38Inspectionofrecords 38Actionwewilltakeifcontractorsdonotoperatetheschemeproperly 38

5BusinessesnotresidentintheUKNon-residentbusinesses 41Non-residentindividualsandpartnershipsregisteringforCIS 41Non-residentcompaniesregisteringforCIS 41RepaymentofdeductionswherethereisaDoubleTaxationAgreement 42RepaymentofdeductionswherethereisnoDoubleTaxationAgreement 43

6MiscellaneousFalsedeclarations 44Disputesaboutdeductions 44Useoftradingnames 44Paymentstothirdparties 45

Personalrepresentatives,liquidatorsandreceivers 46Deathofacontractor 46Takeoverofabusiness 46Changeofcontrolofaclosecompany 47Changeofaddress 47Contrasandset-offs 47Payingsubcontractorsbycreditorpaymentcards 48Retentionpayments 48Reversepremiums 49PaymentsmadeunderaPrivateFinanceInitiativearrangement 49Groupcompanies 50Managingagents 50Schemerepresentatives 50Unofficialforms 51

AppendixAThescopeofconstructionoperations

52

Contractsrelatingtoconstructionoperations 52Constructionoperations 54Constructionoperationsincludedwithinthescheme 54Non-constructionoperations 59

AppendixBExtractfromFinanceAct2004 63

3


4/85


Contents(continued)

AppendixCContractsthatincludeworkthatisincludedANDworkthatisexcluded 65StatusofprivatehouseholdersListofincludedandexcluded

65operations 65

AppendixDExamplesofdeductionsfromsubcontractorspayments 72Deductionsatthestandardrate 72Deductionsatthehigherrate 75

AppendixEExamplepaymentanddeductionstatement 78

Gettingadvice 79Yourrightsandresponsibilities 79Howweuseyourinformation 79Index 80

4


5/85


Whatisthe 1.1ConstructionIndustryScheme?

Whattypesof 1.2workarecoveredbythescheme?

1IntroductiontotheConstructionIndustryScheme(CIS)Thischaptergivesabriefintroductiontotheschemeandtellsyouwhereyoucanfindmoredetailedinformationlaterintheguide.

Theschemesetsouttherulesforhowpaymentstosubcontractorsforconstructionworkmustbehandledbycontractorsintheconstructionindustryandcertainotherbusinesses.Underthescheme,allpaymentsmadefromcontractorstosubcontractorsmusttakeaccountofthesubcontractorstaxstatusasdeterminedbyHMRevenue&Customs.Thismayrequirethecontractortomakeadeduction,whichtheythenpaytous,fromthatpartofthepaymentthatdoesnotrepresentthecostofmaterialsincurredbythesubcontractor.

TheschemecoversallconstructionworkcarriedoutintheUnitedKingdom(UK),includingjobssuchas: sitepreparation alterations dismantling construction repairs decorating demolition.TheUKincludesUnitedKingdomterritorialwatersuptothe12-milelimit.TheschemedoesnotapplytoconstructionworkcarriedonoutsidetheUK.However,abusinessbasedoutsidetheUKandcarryingoutconstructionworkwithintheUKiswithintheschemeandmustregisteraccordingly.

Moreinformation Thereismoreinformationonthescopeoftheschemeinparagraphs2.41to2.45andinAppendixA.ThereismoreinformationonbusinessesnotresidentintheUKatChapter5.

5


6/85


1.3

1.4

1.5

1.6

Theschemecoversalltypesofbusinessesandotherconcernsthatworkintheconstructionindustry,including: companies partnerships self-employedindividuals.

Thesebusinessescanbe: contractors subcontractors contractorsandsubcontractors.Underthescheme,theterms'contractor'and'subcontractor'havespecialmeaningsthatcovermorethanisgenerallyreferredtoas'Construction'.ContractorAcontractorisabusinessorotherconcernthatpayssubcontractorsforconstructionwork.Contractorsmaybeconstructioncompaniesandbuildingfirms,butmayalsobegovernmentdepartments,localauthoritiesandmanyotherbusinessesthatarenormallyknownintheindustryas'clients'.Somebusinessesorotherconcernsarecountedascontractorsiftheiraverageannualexpenditureonconstructionoperationsoveraperiodofthreeyearsis1mormore.Privatehouseholdersarenotcountedascontractorssoarenotcoveredbythescheme.SubcontractorAsubcontractorisabusinessthatcarriesoutconstructionworkforacontractor.BusinessesthatarecontractorsandsubcontractorsManybusinessespayotherbusinessesforconstructionwork,butarethemselvespaidbyotherbusinessestoo.Whentheyareworkingasacontractor,theymustfollowtherulesforcontractorsandwhentheyareworkingasasubcontractor,theymustfollowtherulesforsubcontractors.For

a

more

detailed

explanation

of

what

is

a

contractor

and

what

isasubcontractor,seeChapter2.

Whattypesofbusinessesarecoveredbythescheme?

Moreinformation

6


7/85


Howthe 1.7schemeoperates

Moreinformation

1.8

Moreinformation

1.9

Moreinformation

RegisteringfortheschemeAllcontractorsmustregisterwithusfortheConstructionIndustryScheme.Subcontractorswhodonotwishtohavedeductionsmadefromtheirpaymentsatthehigherrateofdeductionshouldalsoregisterwithus.Wewillprovideregistrationdetailsthatcontractorsandsubcontractorswillneedtousewhentheydealwithpayments.Forinformationonwhenandhowtoregister,seeparagraphs1.16to1.21.VerifyingsubcontractorsBeforeacontractorcanmakeapaymenttoasubcontractorforconstructionwork,theymayneedtoverifywithusthatthesubcontractorisregistered.Wewillcheckwhetherthesubcontractorisregisteredwithusandthentellthecontractortherateofdeductiontheymustapplytothepayment,orwhetherthepaymentcanbemadewithoutanydeductions.Formoreinformationontheverificationprocess,seeparagraphs3.2to3.16.MakingdeductionsfrompaymentsUnderthescheme,allpaymentsmadefromcontractorstosubcontractors,musttakeaccountofthesubcontractorstaxstatus.Thismayrequirethecontractortomakeadeduction,whichtheythenpaytousfromthatpartofthepaymentthatdoesnotrepresentthecostofmaterialsincurredbythesubcontractor.Ifnodeductionisrequired,thecontractorcanmakethepaymenttothesubcontractorinfull.Ifadeductionisrequired,thecontractormust: calculatethededuction makethededuction recorddetailsofthepayment,materialsanddeduction makethenetpaymenttothesubcontractor completeandgivetheappropriatestatementofdeductionto

thesubcontractor.Formoreinformationonmakingapayment,seeparagraphs3.20to3.30

7


8/85


1.10

Moreinformation

1.11

Moreinformation

Doesthe 1.12schemeapplytoemployees?

ReturnsEachmonth,contractorsmustsendusacompletereturnofallthepaymentstheyhavemadewithintheschemeorreportthattheyhavemadenopayments.Thereturnwillinclude: detailsofthesubcontractors detailsofthepaymentsmade,andanydeductionswithheld adeclarationthattheemploymentstatusofallsubcontractors

hasbeenconsidered adeclarationthatallsubcontractorsthatneedtobeverified

havebeenverified.Formoreinformationoncompletingareturn,seeparagraphs4.2to4.29.PaymentstoHMRevenue&CustomsEachmonth,orquarterinsomecases,contractorsmustsendusapaymentforthedeductionstheyhavemadefromsubcontractors.Formoreinformationonpaymentstous,seeparagraphs4.30to4.36.Foracontracttobewithinthescheme,itmustnotbe'acontractofemployment'.Thismeansthattheschemeappliestoworkerswhoareself-employedunderthetermsofthecontract,andwhoarenotemployeessubjecttoPayAsYouEarn(PAYE).Employmentstatusdependsongenerallawanditisforthecontractortodecideontheindividualsemploymentstatuswhenthesubcontractorisfirstengaged.Thefactthatthesubcontractorhasworkedinaself-employedcapacitybeforeisirrelevantindecidingontheiremploymentstatusitisthetermsoftheparticularengagementthatmatter.MoredetailedadviceforcontractorsisgiveninFactsheetES/FS2Areyourworkersemployedorself-employedfortaxandNationalInsurancecontributions.Youcanalsogetadvicefromtheinternetatwww.hmrc.gov.uk/employment-status

Moreinformation

8
http://www.hmrc.gov.uk/employment%EF%BF%BDatushttp://www.hmrc.gov.uk/employment%EF%BF%BDatus


9/85


Cana 1.13 Subcontractorscanapplytobepaidgrosswithnodeductionssubcontractor takenfromtheirpayments.Todothis,subcontractorswillneedtoapplytobepaid showusthattheymeetcertainqualifyingconditions.gross?Moreinformation Furtherinformationonhowtoapplytoberegisteredforgross

Howdosubcontractorspay

tax?

Cansubcontractorssetoffdeductions?

paymentisavailablefromtheinternet,gotowww.hmrc.gov.uk/cis

1.14 Subcontractorshavetomakeareturnoftheirprofitseachyear,andtheirtaxliabilityisbasedonthatreturn.Asubcontractormayalreadyhavepaidtaxbypaymentsonaccountorhaddeductionsmade,asshownonthepaymentanddeductionstatementsgiventothembytheircontractors.Iftheamountalreadypaidordeductedisgreaterthantheamountdue,wewillrepaytheexcess.Ifthereisashortfall,thenthesubcontractormustmakeabalancingpayment.

1.15 Subcontractorsthatarelimitedcompaniescansetoffdeductionstheybearontheirreceiptsagainstthefollowingsumspayabletous. PayAsYouEarn(PAYE)taxduefromthecompanysemployees. EmployersandemployeesNationalInsurancecontributions

(NICs)due. StudentLoanrepaymentsduefromthecompany'semployees. ConstructionIndustryScheme(CIS)deductionsmadefromthe

company'ssubcontractors.ThecompanywillneedtoreducetheamountofPAYE,NICs,StudentLoanrepaymentsandanyCISdeductionsthatthecompanypaysbytheamountofCISdeductionsmadefromthecompanysincome.If,foranymonthorquarter,thecompany'sownCISdeductionsaregreaterthanthePAYE,NICs,StudentLoanrepaymentsandCISliabilitiespayable,thecompanyshouldsetofftheexcessagainstfuturepaymentsinthesametaxyear.

9
http://www.hmrc.gov.uk/cishttp://www.hmrc.gov.uk/cis


10/85


Attheendofthetaxyear,oncewehavereceivedthecompany'sP35annualreturn,anyexcessCISdeductionsthatcannotbesetoffmayberefundedorsetagainstCorporationTaxdue.Norepaymentsorset-offsagainstotherliabilitiescanbemadein-year.Companiesmustkeeparecordoftheamountssetoffsotheycancompletetheirannualemployerreturns.CompaniesmaykeeptheirownrecordsforthispurposeortheymayuseformCIS132Recordofamountsset-off.Youcandownloadthisformatwww.hmrc.gov.uk/cis

Registeringfortheschemecontractors

1.16 WhentoregisterWhenyouareabouttotakeonandpayyourfirstsubcontractor,regardlessofwhetherthatsubcontractorislikelytobepaidgrossorunderdeduction.

1.17 HowtoregisterandmoreinformationToregister,orrequestmoreinformation,pleasecontactus.Phone: NewEmployerHelplineon08456070143.Internet: www.hmrc.gov.uk/employers

1.18 WhathappensnextWewillsetupaContractorScheme(andaPAYESchemeifyouhaveaskedusto)andsendyoualltheinformationyouneed.

Registeringfortheschemesubcontractors

1.19 WhentoregisterWhenyou,yourfirm,oryourcompanyisabouttostartworkwithintheconstructionindustry.

1.20 HowtoregisterandmoreinformationToregister,orrequestmoreinformation,pleasephonetheCISHelplineon08453667899.

1.21 WhathappensnextWewillwriteandconfirmyourregistrationandtellyouwhatinformationyouwillneedtogivetoyourcontractorsbeforetheypayyou.Ifyouarenotalreadyknowntous,wemayalsoaskyoutosatisfyanidentitycheck.

10


11/85


2ThetermsusedundertheschemeIntroductionto 2.1 Underthescheme,acontractorhastomakeadeductioninthekeyterms certainsituationswhenmakingapaymenttoasubcontractorunderacontractthatcoversconstructionoperations.

2.2 Therestofthischaptergivesmoreinformationonthetermsusedunderthescheme.

2.3

2.4

2.5

Contractor

Contractors 2.3to2.22and2.29to2.33Subcontractors 2.23to2.30Payments 2.34to2.35Deductions 2.36to2.39Contracts 2.40Constructionoperations 2.41to2.45andAppendixA.

Underthescheme,theterm'contractor'hasaspecialmeaningthatismuchwiderthanitnormallyhasintheconstructionindustry.Acontractorisabusinessorotherconcernthatpayssubcontractorsforconstructionwork.Underthescheme,therearetwogroupsofcontractors: 'mainstream'contractors 'deemed'contractors.'Mainstream'contractors'Mainstream'contractorsincludethefollowing. Anybusinessesthatincludeconstructionoperationsandpay

othersforworkcarriedoutunderthescheme.Thereismoreinformationonconstructionoperationsinparagraphs2.41to2.45andAppendixA.

Anypropertydevelopersorspeculativebuilders,erectingandalteringbuildingsinordertomakeaprofit.

Gang-leadersorganisinglabourforconstructionwork.Agang-leaderwillalsobeasubcontractor.Thereismoreinformationongang-leadersinparagraphs2.32and2.33.

ForeignbusinessesthatcarryoutconstructionoperationsintheUKorwithinUKterritorialwaters(uptothe12-milelimit).

11


12/85


2.6

2.7

2.8

2.9

2.10

'Deemed'contractorsUnderthescheme,somebusinesses,publicbodiesandotherconcernsoutsidethemainstreamconstructionindustrybutwhoregularlycarryoutorcommissionconstructionworkontheirownpremisesorinvestmentpropertiesaredeemedtobecontractors.Theseconcernsaredeemedtobecontractorsiftheiraverageannualexpenditureonconstructionoperationsintheperiodofthreeyearsendingwiththeirlastaccountingdateexceeds1m.Iftheseconcernshavenotbeentradingforthewholeofthelastthreeyears,theyarecontractorsiftheirtotalexpenditureonconstructionoperationsforthepartofthatperiodofthreeyearsduringwhichtheyweretradingexceeds3m.Anyconcernthatisdeemedtobeacontractorbecauseoneoftheaboveconditionsismetwillcontinuetobedeemedacontractoruntilitcansatisfyusthatitsexpenditureonconstructionoperationshasbeenlessthan1mineachofthreesuccessiveyears.Thefollowingbodiesorbusinessesareexamplesofthosethatare'deemed'tobecontractorsiftheyspendanaverageofmorethan1mayearonconstructionoperations. Non-constructionbusinessessuchaslargemanufacturing

concerns,departmentalstores,breweries,banks,oilcompaniesandpropertyinvestmentcompanies.

Localauthorities. Developmentcorporationsornewtowncommissions. TheCommissionfortheNewTowns. TheHousingCorporation,housingassociations,housingtrusts,

ScottishHomesandtheNorthernIrelandHousingExecutive. Anypublicbodiesnamedintheregulations,suchasNational

HealthTrustsorHealthandSocialServicesTrusts. PublicofficesorDepartmentsoftheCrown(includingany

NorthernIrelanddepartmentandanypartoftheScottishAdministration).

TheCorporateOfficeroftheHouseofLords,theCorporateOfficeroftheHouseofCommonsandtheScottishParliamentaryBody.

Formore

information

on

deemed

contractors,

see

Appendices

A,

BandC.More

information

12


13/85


Moreinformation

Exceptionstotheschemeforcontractors

BusinessesandindividualsthatareNOTcontractorsundertheschemeUnder

the

scheme,

the

following

businesses

and

individuals

are

notcontractors. Ordinaryhouseholdersthatarehavingworkdoneontheirown

premises,suchasnewhousebuilding,decoration,repairsoranextension.

Businesseswhichdonotincludeconstructionoperationswhoseaverageannualexpenditureonconstructionworkoverthelastthreeyearshasbeenlessthan1m.

Ifyouareunsurewhetheryouareacontractorunderthescheme,phonetheCISHelplineon08453667899.

Underthescheme,businessesandotherconcernsthatareotherwisemainstreamordeemedcontractorsmaynotneedtoapplytheschemeforcertaintypesofwork.Sometypicalcasesareexplainedinparagraphs2.13to2.22.

Expenditureincurred

by

certain

businesses

on

their

ownpropertyBusinessesthatarenotmainstreamcontractorsbutarebroughtintotheschemebecausetheyspendanaverageofmorethan1monconstructionoperationseachyeardonotneedtoapplytheschemetoexpenditurethatrelatestopropertyusedforthepurposesofthebusinessitself,or,ifthebusinessisacompany: othercompanieswithinthesamegroup anycompanyofwhich50%ormoreofthesharesareownedby

thecompany.Thetypesofpropertiescoveredbythisexemptioninclude: offices warehouses nursinghomes leasedpropertyusedbythebusiness'sgroup,including

propertyleasedbyonecompanytoanotherwithinthesamegroup

anyotherfacilitiesusedforthebusiness.

2.11

2.12

2.13

13


14/85


2.14 Anyincidentaluseofthepropertybythirdpartiessuchasauditors,projectteammemberswhoarenotemployeesandsecuritystaff,willnotaffecttheexemption.

2.15 Theschememustbeappliedtoexpenditureforconstructionworkonanyofthefollowingtypesofproperty: propertythatisnotusedforthepurposesofthebusiness,

suchaswhereitisletforcommercialpurposestoathirdparty

propertythatisforsaleortolet(exceptwherethesaleorlettingofthatpropertyispurelyincidentaltothebusiness)

propertythatisheldasaninvestment.2.16 Workcarriedoutonlandownedbyasubcontractor

receivingpaymentInthefollowingcases,wecanauthorisemainstreamcontractorsnottoapplytheschemetosmallcontractsorpaymentsforconstructionoperationsamountingtolessthan1,000(excludingthecostofmaterials): wherethecontractorispayingasubcontractortoundertake

workthat

falls

within

the

scheme

on

the

subcontractor's

own

property,or

wherethecontractorispayingasubcontractortoundertakeworkonanyagriculturalpropertyofwhichthesubcontractorisatenant.

2.17 Anexampleofthistypeofpaymentiswhereautilitycompanylaysapipelineacrosssomelandandpaysthelandownerortenanttofillintheholeafterthepipelinehasbeenlaid.

2.18 Torequestauthorisationnottoapplytheschemetosuchpayments,pleasephoneuson08453667899.Wewillneedthefollowingdetails: theconstructionworktobedone whowillbedoingthework wheretheworkwillbedone thecostofthework.

14


15/85


Subcontractors

SmallpaymentsWecanauthorisedeemedcontractorsnottoapplytheschemetosmallcontractsforconstructionoperationsamountingtolessthan1,000,excludingthecostofmaterials.(Thisarrangementdoesnotapplytomainstreamcontractors.)Contractorswhoweregrantedauthorisationnottoapplytheschemetosmallpaymentsofthisnaturepriorto6April2007donothavetoreapplyiftheircircumstancesremainthesameunderthecurrentscheme.Torequestauthorisationnottoapplytheschemetosmallpayments,pleasephoneuson08453667899.LocaleducationauthoritymaintainedschoolsTheschemeshouldnotbeoperatedforpaymentsmadeforconstructionoperationsbythegoverningbodyorheadteacherofamaintainedschoolonbehalfofthelocaleducationauthority.CharitiesTheschemeshouldnotbeoperatedforpaymentsmadeforconstructionoperationsbyanybodyofpersonsortrustestablished

for

charitable

purposes

only.

However,

trading

subsidiariesofsuchcharitablebodiesortrustswillneedtoapplytheschemetosuchpaymentswhereappropriate.Generally,thatwillmeanwherethetradingsubsidiariesarebroughtintotheschemebecausetheyspendatleast1monaverageonconstructionoperationseachyearasdescribedatparagraph2.6onwards.

Underthescheme,theterm'subcontractor'hasaspecialmeaningthatismuchwiderthanitnormallyhasintheconstructionindustry.Asubcontractorisapersonorbodythathasagreedtocarryoutconstructionoperationsforacontractor.Thesubcontractormaybecarryingouttheoperationsinanyway,including: carryingouttheoperationsthemselves havingtheoperationsdonebytheirownemployees

orsubcontractors.

2.19

2.20

2.21

2.22

2.23

2.24

15


16/85


Moreinformation

Subcontractorsinclude: companies,corporatebodiesorpublicbodies,aswellasany

self-employedindividualrunningabusinessorpartnership labouragenciesorstaffbureauxthatcontracttogetwork

donewiththeirownworkforce,ortosupplyworkerstoacontractor

foreignbusinessesbeingpaidforconstructionoperationsthattakeplaceintheUKoritsterritorialwaters(uptothe12-milelimit)

gang-leaderswhoagreewithacontractorontheworktobedoneandreceivepaymentfortheworkoftheirgang

localauthorities

and

public

bodies

who

carry

out

construction

operationsforsomeoneelse(seeparagraphs2.26to2.28).

LocalauthoritiesandpublicbodiesassubcontractorsLocalauthorities(andtheirDirectServicesorLabourOrganisations)andpublicbodies(orsubsidiaries)aresubcontractorsiftheycarryoutconstructionoperationsforsomeoneelse.Althoughtheydonotneedtoapplyforregistration,theymustberegardedasregisteredforgrosspayment.Whenmakingpaymentstolocalauthoritiesandpublicbodies,contractorsshouldnot: verifythem applydeductionstoanypayments includethepaymentsontheirmonthlyreturns.Forthefulllistoflocalauthoritiesandpublicbodiesthataresubcontractorswhencarryingoutconstructionoperations,pleaseseeourinternalCISManual.Gotowww.hmrc.gov.uk/manuals/cisrmanual/cisr13040.htm AgenciesassubcontractorsWhereaworkerissuppliedtoacontractorbyorthroughanagencyandtheworkercarriesoutconstructionoperationsunderthetermsofacontracttheyhavewiththeagency,theagencysupplyingtheworkerwillbeasubcontractorasfarasthecontractorisconcerned.Thecontractormustalwaysapplytheschemewhenmakingpaymenttotheagency.

2.25

2.26

2.27

2.28

2.29

16
http://www.hmrc.gov.uk/manuals/cisrmanual/cisr13040.htmhttp://www.hmrc.gov.uk/manuals/cisrmanual/cisr13040.htm


17/85


2.30

2.31

2.32

2.33

MoreinformationPayments 2.34

2.35

Moreinformation

Whereaworkerismerelyintroducedtothecontractorbyanagencyandsubsequentlycarriesoutconstructionoperationsunderthetermsofacontracttheyhavewiththecontractor,theagencyisnotasubcontractorinthiscase.RulesforagencyworkersSpecialrulesapplytoagencyworkerswhonormallytreattheworkerasanemployeefortaxandNationalInsurancecontribution(NICs)purposes.ThebusinesspayingtheworkershouldnormallydeducttaxunderPAYEandaccountforClass1NICs.Veryexceptionally,thespecialrulesforagencyworkersdonotapplyandanypaymentsforconstructionworkwillfallwithinthescheme.Theagencywillthenbeacontractorandwillneedtofulfilitsobligationsinthatrole.Gangs

Thecontractormustmeettheirobligationsundertheschemeforpaymenttothegang-leader.Thecontractordoesnotneedtobeconcernedwiththetransactionsbetweenthegang-leaderandtheothermembersofthegang.Anydeductionsfrompaymentstothemembersofthegangaretheresponsibilityofthegang-leader.Ifthecontractormakesaseparateagreementwithanyothermemberofthegang,thenthatmemberwillbeasubcontractororemployeeofthecontractor.AcontractorwhopayseachmemberofthegangseparatelymusttreateachasaseparatesubcontractororemployeeandapplythedeductionschemeorPAYEineachcase.Formoreinformationaboutpaymentstogangmembers,pleasephonetheCISHelplineon08453667899.Apaymentisanythingpaidoutbythecontractortothesubcontractorunderacontractforconstructionoperations.Thisapplieswhetherornotthepaymentismadedirectlytothesubcontractor.Paymentsincludecash,chequesandcredit.Anadvance,asuboraloanisacreditandmustbetreatedasapayment.Formoreinformationonpaymentsthataremadetosomeoneotherthanthesubcontractor,seeparagraphs6.9to6.12.

17


18/85


Deductions 2.36 Adeductionistheamountthatacontractorhastowithholdon

Contracts

Constructionoperations

accountoftaxandClass4NICsfromapaymentmadetoasubcontractor.Therearetworatesofdeduction: standardratewhichmustbeappliedtopaymentsmadeto

thosesubcontractorsthatareregisteredwithustobepaidunderdeduction

higherratewhichmustbeappliedtopaymentsmadetosubcontractorswhereweareunabletoidentifythesubcontractor.

2.37 Thedeductionratesmaychangefromtimetotimeandwewillpubliciseanychanges.Youcanfindoutthecurrentratesbycontactingus.Phone: 08453667899Internet: www.hmrc.gov.uk/cis

2.38 Thedeductiondoesapplytoanypartofapaymentthatisforsubsistenceortravellingexpenses.

2.39 Thedeductiondoesnotapplytoanypartofapaymentthatisforthecostofthefollowing: materials ValueAddedTax(VAT) anyamountequaltotheCITB-ConstructionSkillslevy

thatthesubcontractorhasagreedmaybedeductedfromtheirpayment.

2.40 Acontractmeansanylegallybindingagreementorarrangementunderwhichoneindividualorbusinessdoesworkorprovidesservicesforanotherindividualorbusiness.Acontractincludesanagreementmadebywordofmouthaswellasawrittendocument.

2.41 ConstructionoperationsaredefinedinlawinSection74,FinanceAct2004,whichisshownatAppendixB.

2.42 Asageneralguide,constructionoperationscoveralmostanyworkthatisdoneto: apermanentortemporarybuildingorstructure acivilengineeringworkorinstallation.

18


19/85


2.43

2.44

Moreinformation

2.45

Moreinformation

Theworkmightinclude: sitepreparation alterations dismantling construction repairs decorating demolition.

AnyworkinconnectionwithconstructiondoneonaconstructionsiteintheUKorwithinitsterritorialwaters(uptothe12-milelimit)andundercontracttotheowner,client,maincontractororasubcontractorislikelytobeaconstructionoperation.ActivitiesthatarenotconstructionoperationsSomeactivitiesonconstructionsitesarenotregardedasconstructionoperationsunderthescheme.Thisincludesanyactivitythatisclearlynotconstructionwork,suchas: therunningofacanteen therunningofahostel provisionofmedicalorsafetyservices provisionofsecurityservices provisionofsitefacilities.Paragraphs2.41to2.44giveonlyageneralguidetoconstructionoperations.AppendixAgivesmoredetailedguidanceandAppendixBshowsthedefinitionofconstructionoperationsfromSection74,FinanceAct2004.Contractsthatrelatetoconstructionandnon-constructionoperationsWhereasinglecontractrelatestoamixtureofconstructionandnon-constructionoperations,allpaymentsdueunderthecontractarewithinthescheme.Thisisthecaseevenifonlyoneofthejobsisregardedasaconstructionoperation.Ifyouareinanydoubtwhetheracontractshouldbehandledunderthescheme,pleasephonetheCISHelplineon08453667899.

19


20/85


Theverificationprocess

3Howpaymentsaremadetosubcontractors

3.1 Thischapterexplainswhatmusthappenbeforepaymentscanbemadetosubcontractorsandhowpaymentsaremade.

3.2 Verificationistheprocessweusetomakesurethatsubcontractorshavethecorrectrateofdeductionappliedtotheirpaymentsunderthescheme.Therearethreemainstepstotheprocess.1Thecontractorcontactsuswithdetailsofthesubcontractor.2Wecheckthatthesubcontractorisregisteredwithus.3Wetellthecontractorwhatrateofdeductiontoapply,ifany.Beforeacontractorcanmakeapaymentforconstructionworktoasubcontractor,theymustdecidewhethertheyneedtoverifythesubcontractor.Whendoesacontractorneedtoverifyasubcontractor?

3.3 Theruleisthatacontractordoesnothavetoverifyasubcontractoriftheylastincludedthatsubcontractoronareturninthecurrentortwoprevioustaxyears.Seethefollowingparagraphfordetailsofhowthisworksinpractice.

3.4 Ifyouarepayingasubcontractorinthetaxyearthatrunsfrom6April2013to5April2014,youdonothavetoverifythemifyouhavealreadyincludedthemonanymonthlyreturnsince6April2011.Otherwise,youmustverifythesubcontractor.

20


21/85

3.5

3.6


Example1DatecontractorengagessubcontractorA: September2013DatecontractorlastpaidsubcontractorA: NeverDetailsoflastpaymentreturn: NoneVerificationdetailsThecontractormustverifythissubcontractorbeforetheycanpaythemunderthescheme.Wewilltellthecontractorwhetheradeductionshouldbemadefromthisandallfuturepaymentstothesubcontractor.

Example2Datecontractorre-engagessubcontractorB: December2013DatecontractorlastpaidsubcontractorB: August2011Detailsoflastpaymentreturn:ContractormadelastpaymentreturnforthesubcontractorinAugust2011.Thiswaswithintheprevioustwotaxyears.WhenthissubcontractorwaslastpaidinAugust2011theywereentitledtobepaidgross.VerificationdetailsThecontractordoesnothavetoverifythissubcontractorandshouldpaythemgross,withoutanydeduction.

21


22/85


3.7 Example3Datecontractorre-engagessubcontractorC: December2013DatecontractorlastpaidsubcontractorC: August2009Detailsoflastpaymentreturn:Contractormadelastpaymentreturnforthesubcontractorunderthepreviousscheme,ontheirCIS36annualreturnfor200607.

Thiswasearlierthantheprevioustwotaxyears.VerificationdetailsThecontractormustverifythissubcontractorbeforetheycanpaythemastheyhavenotincludedthemonareturninthecurrentorprevioustwotaxyears.

Examplenowobsolete3.8

22


23/85


3.9 PayingthesubcontractorgrossorunderdeductionIfacontractordoesnothavetoverifyasubcontractor,forthereasonsgiveninparagraphs3.3and3.4,theymustpaythesubcontractoronthesamebasisasthelastpaymentmadetothemunlesswehavepreviouslytoldthecontractorotherwise.Thismeansthat: ifthesubcontractorwaslastpaidunderthestandardrateof

deduction,thecurrentpaymentmustalsobemadeunderthestandardrateofdeduction

ifthelastpaymentwasmadegross,becauseadeductionwasnotrequired,thecurrentpaymentmustalsobemadegross.

3.10 CompanieswithinagroupAcontractorthatisacompanywithinagroupdoesnothavetoverifyasubcontractorif: thatsubcontractorhasalreadybeenverified,withinthecurrent

orprevioustwotaxyears,byoneoftheothercompanieswithinthesamegroup,or

paragraphs3.3or3.4apply.

3.11 HowtoverifyasubcontractorPhone: 08453667899Internet: www.hmrc.gov.uk/cisElectronically: UsingeitherElectronicDataInterchange(EDI)or

otherthirdpartysoftware.3.12 Theinformationwewillneed

Firstofall,thecontractorshouldhavetheirownidentifyingdetailstohand,suchasname,address,phonenumberandsoon.Wewillaskforthisinformationsothatwecanbesatisfiedthatthecontractoriswhotheysaytheyare.Then,fortheverificationitself,pleasehavethefollowinginformationready.Aboutthecontractor name UniqueTaxpayerReference(UTR) accountsofficereference employerreference.

23


24/85


AboutthesubcontractorTypeofsubcontractor InformationweneedSole-trader name

UniqueTaxpayerReference(UTR)

NationalInsurancenumberPartnerinafirm firmsname

partnersname firmsUniqueTaxpayer

Reference(UTR)ifthepartnerisanindividual partnersUniqueTaxpayer

Reference(UTR)orpartnersNationalInsurancenumber

ifthepartnerisacompany companysUniqueTaxpayer

Reference(UTR)orcompanyregistrationnumber

Company nameofcompany companysUniqueTaxpayer

Reference(UTR) companyregistration

number

AboutthecontractConfirmationthatacontracthasbeenagreedwiththesubcontractororthatyouhaveformallyacceptedatenderforworkunderacontract.

24


25/85


3.13 WhatwewilldowhenweverifythesubcontractorWewillcheckourrecordstoseeifthesubcontractorisregisteredwithusandthentellthecontractortopaythesubcontractorinoneofthefollowingways: grossthatiswithoutanydeductionstakenfromthepayment netofadeductionatthestandardrate netofadeductionatthehigherratebecause

wehavenorecordofthatsubcontractor'sregistration,orweareunabletoverifythedetailsforanyotherreason.

3.14 VerificationreferencenumberWhenweverifyasubcontractor,wewillgivethecontractoraverificationreferencenumber.Theverificationreferencenumberwillbethesameforeachsubcontractorthatwehaveverifiedatthesametime.Ifitisnotpossibletoverifyasubcontractor,wewilladdoneortwoletterstotheendofthenumbersothatitisuniquetothatsubcontractor.

Example1Acontractorphonesustoverifyfivesubcontractors.WeverifyallfivesubcontractorsandgivethecontractorthesingleverificationreferenceV0004528765tocoverallofthem.

Example2Acontractorphonesustoverifyfivesubcontractors.Weverifyfoursuccessfully,butwearenotabletoverifythefifth.WegivethecontractorthesingleverificationreferenceV0004528765forthefoursubcontractorswhowecouldverify.WegivethesameverificationnumbertothesubcontractorwhocouldnotbeverifiedbutaddalettertotheendsothenumberisV0004528765/A.

Theverificationreferencenumberisveryimportantifthecontractorhasbeentoldtomakedeductionsfromthesubcontractor'spaymentsatthehigherrate.Contractorsmustmakeanoteofthereferencenumbersgivenandmustenterthemontheirmonthlyreturnalongsidetheentriesforeachsubcontractorfromwhomdeductionsatthehigherratehavebeenmade.Itisalsoessentialthatthecontractorshowstheverificationreferencenumber,completewithanylettersonthe

25

3.15


26/85


Futureverification

Changinga

subcontractorspaymentstatus

end,onthesubcontractor'spaymentanddeductionstatementineachcasewheredeductionshavebeenmadeatthehigherrate(seeparagraphs3.25to3.27).Thesubcontractorwillneedthisreferencenumberlaterwhenseekingcreditforanyofthedeductionsmade.Contractorsdonotneedtoshowthisreferenceonmonthlyreturnsorsubcontractors'paymentstatementswheredeductionshavebeenmadeatthestandardrateorwherethesubcontractorhasbeenpaidgross.Whenacontractorhasverifiedasubcontractor,ormadeapaymenttothesubcontractorifverificationwasnotnecessary,thecontractorshouldcontinuetopaythesubcontractorinthesamewayuntilwetellthemaboutanychange.Ifasubcontractoristochangefromgrosspaymenttopaymentunderdeduction,ortheotherwayround,wewilltellthesubcontractorandthecontractor.

Whenwe

need

to

change

a

subcontractor's

payment

status

from

grosspaymenttopaymentunderdeduction,wewillwritetotellthem,giving90daysnoticeofanychangetoallowthemtoappeal,ifrequired.Wewillalsocontactallcontractorswhohaveverifiedorusedthesubcontractorinthecurrentorprevioustwotaxyears.Wewillgivecontractors35days'noticeofthechange.Paymentstheymaketothesubcontractorafterthenotifieddateofchangemustbemadeunderdeduction.Ifthesubcontractor'srecentinvoicehasalreadybeenprocessedinthecontractor'saccountingsystemwewouldnotexpectthecontractortoreprocessitifitisdifficultortime-consumingtodoso,butwouldexpectthechangetobeappliedtothenextpayment.Sometimesasubcontractor'spaymentstatuswillchangefrompaymentunderdeductiontogrosspayment.Ifthishappens,wewilltellthesubcontractorandanycontractorswhohaveverifiedorusedthesubcontractorinthecurrentorprevioustwotaxyears.Therevisedpaymentstatusshouldthenbeappliedtoallsubsequentpaymentstothesubcontractorassoonasitispracticalforthecontractortodoso.

3.16

3.17

3.18

3.19

26


27/85


Makinga 3.20paymentunderdeduction

3.21

3.22

3.23

Moreinformation

Deductionsmustonlybemadefromthatpartofthepaymentthatdoesnotrepresentthecostofmaterialsincurredbythesubcontractor.Anytravellingexpenses(includingfuelcosts)andsubsistencepaidtooronbehalfofthesubcontractormustbeincludedinthegrossamountofpaymentandtheamountfromwhichthedeductionismade.HowtocalculatetheamounttodeductTherearetwostepsthatcontractorsmustfollow.1Workoutthegrossamountfromwhichadeductionwillbe

madebyexcluding: ValueAddedTax(VAT)chargedbythesubcontractorifthe

subcontractorisregisteredforVAT,seetheexamplesinAppendixD

anyamountequaltotheCITB-ConstructionSkillslevythatthesubcontractorhasagreedmaybedeductedfromtheirpayment.

Thecontractorwillneedtokeeparecordofthegrosspaymentamountssothattheycanentertheseontheirmonthlyreturns.2 Deductfromthegrosspaymenttheamountthesubcontractor

actuallypaidforthefollowingitemsusedintheconstructionoperations,includingVATpaidifthesubcontractorisnotregisteredforVAT: materials(seeparagraph3.23below) consumablestores fuel(exceptfuelfortravelling) planthire(seeparagraph3.24) thecostofmanufactureorprefabricationofmaterials.

MaterialsThecontractorcanaskthesubcontractorforevidenceofthedirectcostofmaterials.Ifthesubcontractorfailstogivethisinformation,thecontractormustmakeafairestimateoftheactualcostofmaterials.Thecontractormustalwayscheck,asfaraspossible,thatthepartofthepaymentformaterialssuppliedisnotoverstated.Ifthematerialselementlookstobeexcessive,wemayaskthecontractortoexplainwhy.ExamplesofhowtocalculatethedeductionareshowninAppendixD.

27


28/85


Providingdocumentaryevidenceofadeduction

3.24 PlanthireclaimedasmaterialsPlantincludes,forexample,scaffolding,cranes,cementmixers,concretepumps,earthmovingequipmentandcompressors.Wherethesubcontractorhiresplantinordertocarryoutconstructionwork,thecostoftheplanthireandanyconsumableitemssuchasfuelneededforitsoperationmaybetreatedasmaterialsforthepurposesofcalculatinganydeduction.Thistreatmentonlyextendstoplantandequipmentactuallyhiredbythesubcontractorfromathirdparty.Ifthesubcontractorownstheplantusedinexecutingtheworknonotionaldeductionforplanthiremaybemade,althoughconsumableitemssuchasfuelusedbytheplantmaystillbetreatedasmaterials.

3.25 Thecontractormustprovideawrittenstatementtoeverysubcontractorfromwhomadeductionhasbeenmadewithin14daysoftheendofeachtaxmonth.Ataxmonthrunsfromthe6thofonemonthtothe5thofthenextmonthsothestatementmustbeprovidedbythe19thofthemonth.

Thestatementmaybeissuedbyelectronicmeansbutonlywhere: thecontractorandsubcontractoragreetothismethod,and thestatementisinaformthatallowsthesubcontractorto

storeandprintit.Thestatementcanbeissuedonthebasisofoneforeachtaxmonthoroneforeachpaymentifthisismorefrequent.Contractorsmaychoosethestyleofthestatementsbuttheymustincludethefollowinginformation: thecontractor'sownnameandemployertaxreference theenddateofthetaxmonthinwhichthepaymentwasmade,

suchas'taxmonthending5May2013'orthedateofpaymentwherethestatementrelatestoasinglepayment

thefollowingdetailsofthesubcontractornameUniqueTaxpayerReferencenumber(UTR)thepersonalverificationnumberifthesubcontractorcould

notbeverifiedandadeductionatthehigherratehasbeenmade

thegrossamountofthepaymentsmadetothesubcontractor,ascalculatedaboveinparagraph3.22

thecostofanymaterialsthathasreducedtheamountagainstwhichthedeductionhasbeenapplied

28


29/85


theamountofthededuction.Theremaybeotherinformationthatacontractormaywanttoputonthestatementtoenablethesubcontractortounderstandthepaymentthathasbeenmade.Forexample,thismayincludetheamountofValueAddedTax(VAT)chargedbythesubcontractor.

3.26 Itisgoodpracticeforacontractortogiveasubcontractorapaymentstatementwherethepaymenthasbeenmadegross,butthereisnoobligationtodoso.

3.27 DuplicatestatementsIfastatementdoesnotreachasubcontractororitisotherwiselost,thesubcontractormayaskthecontractorforanothercopy.Contractorsmayissueduplicatesinsuchcasesbuttheduplicatemustbeclearlymarked'Duplicate'toavoidanyconfusionwiththemissingstatementifitislaterfound.WehavegivenanexampleofatypicalstatementofdeductioninMoreinformationAppendixE.

Towhom 3.28 Thecontractorshouldnormallymakepaymentsunderdeductionshould tothesubcontractor,butthesubcontractormayauthorisepayments paymenttobemadeouttoanotherperson,suchasadebtfactor.under Thestatementmuststillbemadeoutinthenameofthededuction subcontractorandissuedtothesubcontractorsotheyreceivebemade? creditforanydeduction.

Seeparagraphs6.9to6.12formoreinformationaboutmakingMoreinformationgrosspaymentstosomeoneotherthanthesubcontractor.

3.29 Onorbeforemakinganypaymenttoasubcontractor,theKeepingcontractormustmakearecordof:recordsof thegrossamountofthepayment,excludingVATpayments thecostofanymaterialsexcludingVAT(ifthesubcontractoris

registeredforVAT),forthosesubcontractorswhoareliableforadeduction

theamountofthededuction.

29


30/85


Summaryofproceduresformakingpaymenttoasubcontractor

3.30 Contractorsshould: considerwhetherornottheyneedtoverifythesubcontractor

withus(seeparagraphs3.3and3.4) verifythesubcontractorifnecessary(seeparagraphs3.11

to3.16) makepaymenttothesubcontractorwhereadeductionis

notrequired.Whereadeductionmustbemadefromthepayment,contractorsshould: calculateandmakethedeductionfromthepaymentto

thesubcontractor recorddetailsofpayment,materialsanddeduction makethenetpaymenttothesubcontractor completeeitherastatementofdeductionforallpayments

madeinthattaxmonthoronestatementforeachpayment,asthecontractorprefers,toshowdateoftaxmonth,grosspayment,amountliabletodeductionandamountdeductedtakecaretoexcludeanyamountsshownonanyearlierstatements

givethestatementtothesubcontractor.

30


31/85


4.1

4.2

4WhatwerequirefromcontractorsThischapterexplainswhatwerequirefromcontractorsunderthescheme.Itcoversthecontractor'smonthlyreturn,paymentofanydeductionsduetous,andexplainswhatmighthappenifcontractorsdonotapplytheschemeproperly.

Eachmonth,contractorsmustsendusacompletereturnofallpaymentsmadetoallsubcontractorswithintheschemeintheprecedingtaxmonth.Thisisregardlessofwhetherthesubcontractorswere: paidgross paidnetofthestandarddeduction paidnetofthehigherdeduction.

Monthlyreturns

4.3

4.4

Monthlyreturnsmustreachuswithin14daysoftheendofthetaxmonththeyarefor.ExampleAreturnofallpaymentsmadetosubcontractorsbetween6Mayand5Junemustbesentinsufficienttimetoreachusby19June.

HowtomakeamonthlyreturnTherearethreewayscontractorscanmaketheirmonthlyreturns.

4.5

Internet:Electronically:

Post:

Paperreturns

www.hmrc.gov.uk/cisusingeitherElectronicDataInterchange(EDI)orotherthirdpartysoftwareConstructionIndustrySchemeCombenHouseFarriersWayLiverpoolL751HL

Ifcontractors

choose

to

use

paper

returns,

we

will

send

out

the

returnformspartiallycompletedtoarrivebythelastday(the5th)ofthetaxmonththeyarefor.

31


32/85


Thenamesandtaxpayerreferencesofallsubcontractorsthatthecontractorhaspreviouslyreturned,ornewlyverified,withinthelastthreemonthswillbepreprintedontheforms.Pleasedonotamendanypreprinteditemsonthereturns.

4.6 GuidanceoncompletingthereturniscontainedintheMonthlyReturnGuidanceNotesthatwewillsendoutintheContractorPack.

4.7 Thereturnsmustbesenttousunfoldedusingtheenvelopeweprovide.Pleaseensurethatyoupaythecorrectpostageforthereturns.

4.8 CompletingamonthlyreturnContractorsmustdoallofthefollowing. CheckthepreprintednamesandUniqueTaxpayerReference

(UTR)numbersofallthesubcontractorstheyhavepaidinthemonth.

Leaveblankanypreprintedentriesforsubcontractorstheyhavenotpaidinthemonth.

AddthenamesandUniqueTaxpayerReferences(UTRs)ofanyadditional

subcontractors

to

whom

they

have

made

payments

inthemonth,includingtheverificationnumbersagainstthosesubcontractorsfromwhomadeductionatthehigherratehasbeenmade.

Enterdetailsoftheamountspaidtoeachsubcontractor(thatisbeforeanydeduction),detailsofanymaterialsallowedanddeductionsmadefromthosesubcontractorsnotentitledtoreceivegrosspayments.

Sign(orconfirm,ifsubmittingelectronically)thedeclarationsaboutverificationandthesubcontractors'employmentstatus.

Ifusingpost,sendtheoriginalreturntousattheaddressshownonpage31usingthepreprinted-addressedenvelopesweprovide.

4.9 Reportingnon-schemepaymentstoasubcontractorSometimes,contractorsmayincludeonthemonthlyreturnpaymentstosubcontractorsthatarenotwithinthescheme.Where

this

happens,

we

will

not

normally

regard

such

action

as

givingrisetoanincorrectreturn.

32


33/85


4.10 However,whenpayingsubcontractorsunderdeduction,contractorsshouldensurethatdeductionsarenotmadefrompaymentstosubcontractorsforcontractsthatarewhollyoutsidethescopeofthescheme.

4.11 NilreturnsContractorswhohavenotpaidanysubcontractorsinaparticularmonthmustsubmita'Nilreturn'.Therearefourwaystodothis.Internet: www.hmrc.gov.uk/cisPhone: 08453667899Electronically: usingElectronicDataInterchange(EDI)

orthirdpartysoftwareMonthlyreturn: bycompletingtheappropriatesection

onthemonthlyreturnandpostingthisbacktous.

4.12 Contractorswhoknowtheywillnotbepayinganysubcontractorsforseveralmonthsshouldletusknowandwewillsuspendtheissueofthemonthlyreturnforsixmonths.Ifthesituationchangesduringthattime,thecontractormustletusknowsothatwecanstartsendingoutthemonthlyreturnagain.

4.13 Theprincipleforthemonthlyreturnisthatitshouldreflectwhatthecontractorhasactuallypaidanddeductedinthemonthitcovers.

4.14 Werecognise,however,thatcontractorswillsometimesmakemistakesontheirmonthlyreturns.Wherethishappenswewillnotautomaticallylookforpenaltiesortakeawaythecontractor'sowngrossstatusasasubcontractor.Wewillusuallyonlytaketheseactionsinthemoreseriouscaseswherewebelievetheerrororomissionhasbeencausedbythecontractor'snegligenceorintent.

4.15 Thefollowingparagraphs,explaininghowandwhenareturnneedstobecorrected,assumethattherelevantmonthlyreturnhasalreadybeensubmittedtous.

Correctingerrorsonmonthlyreturns

33


34/85


Moreinformation

IncorrectentryofdetailsonreturnAcontractormightomitdetailsofapaymenttoasubcontractorormightmakeamistakeinenteringdetailsofthepaymentordeductionontothereturn.Forexample,thecontractormaytransposethepaymentfiguresandrecordapaymentof560as650onthereturn.Inthesecases,theentriesonthereturnwillclearlynotreflecttheactualpaymentsand/ordeductionsmadeinthemonth.Tocorrectthesetypesoferror,contractorsshouldphoneusgivingfulldetailsoftheerrorsandthecorrectfigures.Ifyouneedtoinformusaboutanincorrectreturn,pleasephonetheCISHelplineon08453667899.Subcontractorisunderpaidinerror

TherewillbecaseswheretheerrorhasbeenmadeinthepaymentitselfandcopiedontotheCISmonthlyreturn,forexample,whereasubcontractorhasbeenpaid2,000insteadof3,000.Underpaymentsofthistypecanusuallybeputrightbyafurther,balancingpayment.Thatfurtherpayment,andanydeductionsmadefromit,shouldbeenteredontothereturnforthemonthinwhichitispaid.Thetotalofpaymentsmadeandanydeductionsshouldthenbecorrect,overall.SubcontractorisoverpaidinerrorIfthecontractoroverpaysthesubcontractor,forexample,bymakingapaymentof3,000insteadofthe2,000due,thenthemonthlyreturnshouldreflecttheamountofthepaymentmade,thatis,3,000.HowthatisthencorrectedforCISwilldependontheapproachthatthecontractoradopts.Ifthesubcontractorsengagementcontinuesintothefollowingmonth,thecontractormayagreewiththesubcontractortopay1,000,insteadofthe2,000due.Thiswillbalanceoutthepaymentsandthecontractorsimplyneedstoenterthe1,000paidinthesecondmonthonthereturnforthatmonth.

4.16

4.17

4.18

4.19

4.20

4.21

34


35/85


4.22

4.23

4.24

Moreinformation

Ifthesubcontractorispaidunderdeduction,thesameprinciplewillapply.Forthefirstmonthinthisexample,assumingadeductionrateof20percent,therewouldbeanetpaymentof2,400andadeductionof600and,inthesecond,anetpaymentof800andadeductionof200.Thepaymentstatementsprovidedtothesubcontractoreachmonthwouldalsoreflectthosefigures.Wherethesubcontractor'scontracthasendedandnofurtherpaymentsaredue,fromwhichtotakeapreviousmonth'soverpayment,thestepstobetakenbythecontractordependonwhatactionistakentorecovertheoverpayment.Ifthecontractorstopsthechequeorthesubcontractorreturnsitwithoutcashingit,thecontractorshouldreissuethepaymentinthecorrectamount,retrieveandreissuethesubcontractor'spaymentstatementandcontactustoreporttheerrorontheearlierreturn.Therevisedpaymentandanydeductionsshouldberecordedonthenextmonthlyreturn.Wherethechequehasbeencashedandanydeductionshavebeenpaidovertous,thecontractorwillbeseekingtheexcesspaymentfromthesubcontractor.Althoughthemonthlyreturninthiscasewillbecorrect,asitreflectswhatwasactuallypaidinthemonth,thecontractorshouldphoneustoreporttheerrorandtoadviseusofthecorrectpaymentsduetothesubcontractor.Ifyouneedtoinformusaboutanincorrectreturn,pleasephonetheCISHelplineon08453667899.

4.25

4.26Howdoesacontractorcorrectareturn?Contractorswhoneedtoreportcorrectionstoreturns,asdescribedinthepreviousparagraphs,shouldphoneuswithfulldetailsofwhichmonthlyreturn(s)theyneedtocorrectand,ifthecorrectionisappropriate,wewillrecordit.'Appropriate'heremeansthatthechangeisacorrectionofthetypedescribedabove,ratherthan,say,forachangeincontractornameoraddress,whichisnotrelatedtothecontentofthemonthlyreturn.

35


36/85


4.27

4.28

4.29

Moreinformation

Making 4.30paymentstous

Ifpossiblewewillalsotakethisopportunitytodealwithanyotherpointsthatmayhavepreventedthereturnfrombeingprocessedfully,suchasunreadablefields.Wewillthengenerateanewversionofthereturnandreprocessit.Whenmakingcorrectionsoverthephone,thecontractorshouldmakeanoteofthedateandtimeofthecallandnatureofthechanges.Thisisincasethecontractorneedstomakeanysubsequentenquiriesaboutthechanges.Ifyouneedtoinformusaboutanincorrectreturn,pleasephonetheCISHelplineon08453667899.Alsotofindmoredetailsaboutcorrectingerrorsonreturns,gotowww.hmrc.gov.uk/cisContractorsmustpaytheamountdeductiblefrompaymentstosubcontractorstoouraccountsofficemonthly.Theymustpaydeductionsduetobemadeineachtaxmonthwithin14daysoftheendofthatmonthorwithin17dayswherepaymentismadeelectronically,

whether

or

not

these

deductions

have

actually

beenmade.Thismeansthatwherearequireddeductionhasnotactuallybeenmadefromthesubcontractor'spayment,forwhateverreason,thecontractorisstillresponsibleforpayingthatamountovertous.FromMay2010,contractorsmayhavetopaypenaltiesiftheydonotpaytheamountsdueontimeandinfull.ExampleDeductionsmadebetween6Mayand5Junemustbepaidby19June,orby22Junewherepaymentismadeelectronically(orthepreviousbankingdaywherethe22ndisaweekendorbankholiday).

Pleaseensureyouusethecorrectpayslipforthemonthinquestion.IfthecontractoralsohasPAYEemployees,thecontractormustmakeapaymenttoouraccountsofficethatincludesboththesubcontractorsdeductionsandthePAYE/NICsdeducted.

4.31

36


37/85


4.32 Acontractorwhoseaveragemonthlypaymentstotheaccounts

Companiessettingoffdeductions

office(including,whereapplicable,PAYEandNICsdeductionsfromemployees)arebelowacertainlimit,maychoosetopayquarterly.ThelimitisshownintheEmployerHelpbookE13,Day-to-daypayroll.ThisisincludedintheEmployerPack,butisalsoavailableontheinternet,gotowww.hmrc.gov.uk/helpsheets/e13.pdfThequartersendon5July,5October,5Januaryand5Aprilandpaymentsareduewithin14daysoftheendofeachquarteror17daysifthecontractorpayselectronically.

4.33 Evenwherepaymentsaremadeonaquarterlybasis,contractorsmuststillsendreturnsmonthly(seeparagraph4.2above).

4.34 CompaniesthathavedeductionstakenfromtheirincomeassubcontractorsshouldsetoffthesedeductionsagainsttheamountspayablemonthlyorquarterlyforPAYE,NICsandStudentLoanrepaymentsduefromtheiremployeesandschemedeductionsfromtheirsubcontractors.CompaniesshouldsimplyreducetheamountofPAYE,NICs,StudentLoanrepaymentsandanyschemedeductionstheypayovertoouraccountsofficebytheamountofCISdeductionsmadefromtheirincome.

4.35 Inanymonthorquarter,ifthecompany'sownschemedeductionsaregreaterthanthePAYE,NICs,StudentLoanrepaymentsandschemeliabilitiespayable,thecompanyshouldsetofftheexcessagainstfuturepaymentsinthesametaxyear.Attheendofthetaxyear,whenwehavereceivedthecompany'sP35EmployerAnnualReturn,anyexcessschemedeductionsthatcannotbesetoffmayberefundedorsetagainstCorporationTaxdue.

4.36 Contractorsmustkeeparecordoftheamountssetoffsotheycancompletetheirend-of-yearreturns.TheycankeeptheirownrecordsforthispurposeortheycanuseformCIS132Recordofamountsset-offwhichcanbedownloadedfromwww.hmrc.gov.uk/cis

37
http://www.hmrc.gov.uk/helpsheets/e13.pdfhttp://www.hmrc.gov.uk/cishttp://www.hmrc.gov.uk/helpsheets/e13.pdfhttp://www.hmrc.gov.uk/cis


38/85


4.37 TherearenoannualreturnswithintheConstructionIndustryScheme.ContractorsthatarerequiredtosubmitanEmployerAnnualReturnonformP35shouldremembertoincludeonthatformthetotalamountofschemedeductionstheyareduetopaysotheycanreconcilethetotalpaymentsmadeduringtheyear.

4.38 Fromtimetotime,wewillinspecttherecordsofcontractorsinthesamewayasweinspectanemployersPAYErecords.

4.39 RecordsarchivedusingopticalimagingsystemsIf

records

are

created

in

paper

form,

we

are

content

for

them

to

bearchivedusingopticalimagingsystems,aslongaswhatisretainedisacompleteandunalteredimageoftheoriginalpaperdocument.Contractorsmust,attheirowncost: keeprecordsforatleastthreeyearsaftertheendofthetax

yeartowhichtheyrelate makerecordsavailableonrequest provideviewingfacilitiesfortherecords providefull-scalecopiesoftherecordsifrequired.

4.40 Ifacontractorfailstooperatetheschemeproperly,wemaycancelthecontractor'sowngrosspaymentstatusifthecontractoralsooperatesasasubcontractor.

4.41 PenaltiesforlatemonthlyreturnsIfacontractorfailstosubmitamonthlyreturnontime,wewillchargethemthedayafterthefilingdateafixedpenaltyof100.Ifthereturnisstilloutstanding,wewillcharge: twomonthsafterthefilingdateasecondfixedpenalty

of200 sixmonthsafterthefilingdateatax-gearedpenaltywhichis

thegreaterof300or5percentofanydeductionsshownonthereturn

twelvemonthsafterthefilingdateasecondtax-gearedpenaltywhichisthegreaterof300or5percentofanydeductionsshownonthereturn.Where,however,webelieveinformationhasbeendeliberatelywithheld,thispenaltywillbehigher.

EmployerAnnualReturnformP35

Inspectionofrecords

Actionwewilltakeifcontractorsdonotoperatetheschemeproperly

38


39/85


4.42

4.43

4.44

4.45

4.46

Moreinformation

PenaltiesforincompleteorincorrectmonthlyreturnsIfacontractorsubmitsamonthlyreturnthatisincompleteorincorrect,wemaychargepenaltieswherewebelievetheerrororomissionhasbeencausedbynegligenceorintentonthepartofthecontractor.Incompleteorincorrectreturnsinclude: personsorpaymentsomittedfromthereturn personsorpaymentsincorrectlyenteredontothereturn failingtomakeadeclarationinrespectofverificationor

employmentstatus incorrectlymakingadeclarationinrespectofverificationor

employmentstatus.MissingrecordsIfacontractorfailstoproducerecordsrelatingtopaymentsmadeundertheschemewhenaskedtodoso,wemaychargepenaltiesupto3,000.Wemaychargecontractorspenaltiesofupto3,000ifthey: failtogivestatementstosubcontractorsregisteredforpayment

underdeduction,

recording

their

payments

and

deductions,

or

negligentlyordeliberatelyprovideincorrectinformationin

suchstatements.ProblemswithdeductionsIfthingsgowrongwhenacontractorappliesdeductions,thecontractormayneedtosatisfyusthateveryreasonablecarewastakentofollowtherulesoftheschemeandthateither: thefailuretomakeallorsomeofthedeductionwasduetoan

innocenterror,or inspiteofreasonablecare,thecontractordidnotbelievethat

thepaymentcamewithintherulesofthescheme.Ifwerefusetowaivepaymentofthedeductionsthatshouldhavebeenmade,thecontractorhastherightofappealagainstthatdecision.Formoreinformation,seeourfactsheetHMRC1HMRevenue&Customsdecisionswhattodoifyoudisagreewhichisavailablefromwww.hmrc.gov.uk/factsheets/hmrc1.pdf

39
http://www.hmrc.gov.uk/factsheets/hmrc1.pdfhttp://www.hmrc.gov.uk/factsheets/hmrc1.pdf


40/85


4.47 Wherewecannotagreewhetherornotadeductionshouldhavebeenmade,wemaymakeanassessmentoftheamountwebelieveshouldhavebeendeducted.Thecontractorhasarightofappealagainstourassessment.

4.48 Wewillwaivethecontractorsliabilityifwearesatisfiedthattheindividualorbusinessthecontractormadethepaymentsto: wasnotchargeabletoIncomeTaxorCorporationTaxforthese

payments,or hasmadeareturnofincomeorprofitsthatincludesthe

paymentsandhaspaidtheIncomeTaxandClass4NationalInsurancecontributionsorCorporationTaxfortheincomeorprofits.

40


41/85


Non-residentbusinesses

Non-residentindividualsandpartnershipsregisteringforCISNon-residentcompaniesregisteringforCIS

5BusinessesnotresidentintheUK5.1 Theschemeappliesto:

anynon-residentcontractorwhopayssubcontractorsforconstructionworkcarriedoutintheUK anynon-residentsubcontractorwhoisbeingpaidfor

constructionworkcarriedoutintheUK.ItdoesnotmatterwherepaymentisactuallymadeiftheconstructionworkiscarriedoutintheUKthentheschemeappliestothatpayment.ThereisnodifferencebetweenthetreatmentofUKcontractorsandsubcontractorsandnon-residentcontractorsandsubcontractors.

5.2 IfyouareapplyingtoberegisteredasasubcontractoryouwillneedtodothisbeforeyoustartworkintheUK. Otherwise,yourcontractorwillhavetomakedeductionsatthehigherratefromyourpayments.

5.3 Non-residentindividualsandpartnershipswhoneedtoregisteras: contractorsshouldseeparagraph1.16inthisguide subcontractorsshouldseeparagraph1.19inthisguide.

5.4 CompaniestakingonsubcontractorsforconstructionworkintheUKandcompaniesthatareintendingtoactassubcontractorsintheUKneedtoregisterwithourCharitiesAssetsandResidencyOffice.Therearethreewaystocontactusaboutthis.Post: HMRCCARResidency

Non-ResidentBusinessCISStJohnsHouseMertonRoadLiverpoolL751BBEngland

Fax: +441514726148Phone: +441514726208or+441514726209

forinformationaboutDoubleTaxationAgreementsorabouthowtheConstruction

41


42/85


RepaymentofdeductionswherethereisaDoubleTaxationAgreement

IndustrySchemeappliestonon-residentsortodiscussregistrationorothermattersaboutthescheme.Wecangiveyouadviceandsendyoutheformsandleafletsyouneed.

Ifyou,oryourcompany,areresidentinacountrythathasaDoubleTaxationAgreement(DTA)withtheUKitispossiblethatyoumaybeentitledtoclaimexemptionfromUKtax.ThiswillbethecasewhereyourUKbusinessprofitsarenotattributabletoapermanentestablishmentinthiscountrythroughwhichyouarecarryingonbusiness.ClaimsforexemptionunderthetermsofaDTAshouldbesenttoHMRCCARResidency.YoucanfindalistoftheUKsDTAsinbookletHMRC6Residence,DomicileandtheRemittanceBasis availableontheinternetatwww.hmrc.gov.uk/cnr/hmrc6.pdfPermanentestablishmentThetermpermanentestablishmentincludes: placeofmanagement abranch anoffice afactory aworkshop aninstallationorstructurefortheexplorationof

naturalresources amine,anoilorgaswell,aquarryoranyotherplaceof

extractionofnaturalresources abuildingsiteorconstructionorinstallationproject.Abuildingsiteorconstructionorinstallationprojectisapermanentestablishment.However,undermanyDoubleTaxationAgreementsitisnottreatedasoneifitdoesnotlastlongerthanastatedperiodusuallybetween3and24months. Checktheagreementforyourcountryofresidencetoseewhat,ifany,theperiodis.

5.5

5.6

5.7

42
http://www.hmrc.gov.uk/cnr/hmrc6.pdfhttp://www.hmrc.gov.uk/cnr/hmrc6.pdf


43/85


5.8 TheexistenceofaDoubleTaxationAgreementdoesnotmeanthatyoudonothavetooperatetheConstructionIndustryScheme.Youmuststillregisterandoperatetheschemeasnormal.

5.9 IfweagreethatyouareexemptfromUKtaxunderaDTA,wewillrepayanydeductionsmadeundertheschemeasfollows.

5.10 CompanysubcontractorsshouldsetoffanydeductionsmadefrompaymentstheyreceivefromcontractorsagainsttheirownliabilityforPAYE/NICsandsubcontractors'deductions,wheretheyhavesuchliabilities.Anybalanceofdeductionsthatcannotbesetoffinthiswaymayberepaidonsubmissionofthecompany'sannualreturnonformP35.

5.11 Individualsandpartnershipsubcontractorswantingtoclaimarefundshouldcontactusattheofficewheretheyregisteredforthescheme.

5.12 Generally,ifyouareanindividualorpartnerinafirm,anydeductionsmadebycontractorsfromtheamountstheypayyouareallowableagainstyourUKtaxliability.However,theremaybetimeswhenyoumakelittleornoprofitinthetaxyear,andthedeductionsexceedyourliability.Whenthishappens,youcanclaimarepaymentoftheexcessdeductionsfromus.Ifwearesatisfiedthatyouhavepaidtoomuch,wewillsendyouarepayment.

5.13 CompaniesmustclaimarepaymentofexcessdeductionsonsubmissionoftheirannualreturnonformP35.

5.14 Non-residentsubcontractorswhodonotregisterIfyoudonotregisterasasubcontractorwhenyoushoulddo,yourcontractorisobligedtomakedeductionsatahigherratefromanypaymentsmadetoyou.

RepaymentofdeductionswherethereisnoDoubleTaxationAgreement

43


44/85


Falsedeclarations

Disputesaboutdeductions

Useoftradingnames

6Miscellaneous6.1 Itisanoffenceforasubcontractorknowinglyto:

makeafalsedeclaration,or submitanyfalsedocumentationinordertoregisterforgrosspaymentorpaymentunderdeduction.Thisoffencemayresultinapenaltyofupto3,000.

6.2 Ifacontractorandasubcontractorcannotagreeaboutadeduction,eitherofthemmayaskusforaruling.Iftheystillcannotreachanagreementaftertheruling,eitherthecontractororthesubcontractormayaskustobringthematterbeforetheindependenttaxtribunalforadecision.

6.3 Ifagreementcannotbereachedquicklybecauseofthedispute,thecontractormustmaketheappropriatedeductionandpayitovertoouraccountsoffice.Ifitislaterfoundthatsomeorallofthedeductionwasnotnecessary,wewillrepaytheexcesstothesubcontractor.

6.4 Thesamerulesapplyinanydisagreementwithus.6.5 Manybusinesses,whethersoletraders,partnershipsor

companies,conductall,orpart,oftheirbusinessusingone,orsometimesmore,tradingnames.However,atradingnamehasnolegalstatusofitsownandissimplyabrandnamefortheunderlyinglegalentity.

6.6 WhenregisteringforCIS,subcontractorswillneedtoprovideuswiththeirlegalnamebuttheycanalsogiveusonetradingname,iftheywish.

6.7 Whenthesubcontractorsubsequentlyentersintoacontractwithacontractor,theyshouldgivethecontractordetailsoftheirlegalname,asregisteredonourcomputersystem,togetherwiththeirUniqueTaxpayerReference(UTR),andNationalInsurancenumber,orcompanyregistrationnumberwhentheyareacompany.Withoutthisinformation,wemaybeunabletoidentifythesubcontractorwhenthecontractorattemptstoverifythem.Whenthishappens,wewilltellthecontractortomakedeductionsatthehigherratefromanypaymentstothesubcontractor.

44


45/85


6.8 Contractorsshouldenterthesubcontractor'sname,asitisrecordedonourcomputersystem,ontothemonthlyreturn.

6.9 NomineesIfpaymentistobemadetoasubcontractorsnominee,forexample,agangmember,workmateorthesubcontractorsrelative,thecontractormustverifyboththesubcontractorandthenominee.Forpaymenttobemadegrosstothenominee,boththesubcontractorandthenomineemustberegisteredforgrosspayment.

6.10If

the

subcontractor

is

not

registered

for

gross

payment,

payment

underdeductionmustbemadetothenomineeusingtherateapplicabletothesubcontractor.Thismeansthatifthesubcontractorisregisteredforpaymentunderdeduction,thestandardrateofdeductionmustbeappliedtothepaymentbeingmadetothenominee.Ifthesubcontractorisnotregistered,orcannotbeverifiedforanyotherreason,thepaymenttothenomineemustbemadeunderdeductionatthehigherrateregardlessofthenominee'sownpaymentstatus.Thecontractormuststillmakeoutapaymentanddeductionstatementinthenameofthesubcontractorandissueittothesubcontractor.

6.11 DebtfactorsIfasubcontractorassignstheirrighttoreceivepaymenttoadebtfactor,then,thecontractorcanmakethepaymentasifitwerebeingmadedirecttothesubcontractor.Ifwehavetoldthecontractortopaythesubcontractorgross,thepaymenttothedebtfactormustalsobemadegross.Ifwehavetoldthecontractortomakeadeductionfromthepaymenttothesubcontractor,thecontractormustmakethedeductionfromthepaymenttothedebtfactor.Thecontractormuststillmakeoutapaymentanddeductionstatementinthenameofthesubcontractorandissueittothesubcontractor.

Paymentstothirdparties

45


46/85


Personalrepresentatives,liquidatorsandreceivers

Deathofacontractor

Takeoverofabusiness

Whereasubcontractorhasdied,anypaymentstotheirpersonalrepresentativesshouldbemadeonthesamebasisaspaymentsweremadetothedeceasedimmediatelybeforetheirdeath.Wherealiquidator,receiveroradministratorhasbeenappointedtoconducttheaffairsofacompany,paymentsshouldcontinuetobemadeinaccordancewiththecompanystaxstatus.Ifacontractordies,theresponsibilityfortherunningoftheschemefallstotheirpersonalrepresentatives.Theresponsibilitiesincludepayingoverdeductionsandsendinginthemonthlyreturns.Ifabusinesspreviouslyrunbyanindividualistakenoverbyapartnershiporcompany,theoldschemeregistrationcannotbeusedforthenewbusiness.Thenewbusinessmustregisterfortheschemeandgetgrosspaymentstatusbeforeitcanbepaidwithoutdeductionsbeingmade.Similarly,ifanindividualtakesoverassoleproprietorofabusinesshavingpreviouslybeenapartnerordirectorofthatbusiness,theymustapplyagainforgrosspaymentstatusasthepreviousstatusofthepartnerordirectorwillnolongerbevalid.Whenacontractortakesoveranotherbusinessasagoingconcern,thecontractormayrequestauthorisationtotreatcertainsubcontractorverificationsmadebythepreviousbusinessasiftheyhadbeenmadebythenewbusiness.Normally,thiswillapplyinrespectofanysubcontractorswhoareworkingonongoingcontractsatthetimeofthetransferofthebusiness.Thiswillavoidtheneedforthecontractortohavetoverifyseveralsubcontractorsaftertheacquisitionofthebusiness.

Torequestauthorisationinthesecircumstances,pleasephoneuson08453667899.Wewillneedthefollowingdetailsforboththenewcontractorandtheformercontractorbusiness: name UniqueTaxpayerReference(UTR) accountsofficereference employerreference.Wewillalsoneedtoknowwhichsubcontractors'contractsarebeingtransferredtothenewbusiness.

6.12

6.13

6.14

6.15

46


47/85


6.16 Aclosecompanyisbasicallyacompanythatisunderthecontroloffiveorfewerpersons.Ifaclosecompanyholdsgrosspaymentstatusandthereisachangeofcontrolthroughatransferorissueofsharesinthecompanythecompanymustnotifyusofthenamesandaddressesofthenewshareholderswithin30days.Companiesthatfailtodothismayhavetheirgrosspaymentstatuswithdrawn.

6.17 Subcontractorsmustnotifyusofanychangeto: thebusinessaddress registeredofficeaddress privateaddress.

6.18 Thetermscontraandset-offhavespecialmeaningsintheconstructionindustry.

6.19 ContrasAcontraisachargeforgoodsorservicessuppliedbyonepartytoanother.

6.20 Underthescheme,acontradoesnotreducethepaymentfromwhichthedeductionmayhavetobemadeandisapaymentbythecontractortothesubcontractor.

Changeofcontrolofaclosecompany

Changeofaddress

Contrasandset-offs

ExampleOnacontractworth200,acontractorgivesthesubcontractorsomesurplusmaterialsandrestrictspaymentby50.Thecontractormustcalculatethedeductiononthefullcontractvalueof200.Whencompletingthemonthlyreturn,thecontractormustshowthegrosspaymenttothesubcontractor,ortheamountbeforedeductionwhereappropriate,intheamountof200.

6.21 Set-offAset-offismoneynotpaidtoasubcontractorbyacontractorwhobelievestherehasbeenabreachofcontract.

6.22 Underthescheme,aset-offdoesreducethepaymentfromwhichthedeductionmayhavetobemadeandsoisnotapaymentbythecontractortothesubcontractor.

47


48/85


6.23

6.24

6.25

6.26

Payingsubcontractors

bycreditorpaymentcards

Retentionpayments

ExampleOnacontractworth2,000,acontractorwithholds400becauseworkwasbelowstandard.Thecontractormustcalculatethedeductionon1,600.Whencompletingthemonthlyreturn,thecontractormustshowthegrosspaymenttothesubcontractor,ortheamountbeforedeductionwhereappropriate,intheamountof1,600.

Subcontractorsmayinvitecontractorstopaythembydebit,credit

or

other

type

of

purchase

card

in

order

to

effect

payment

underthecontract.Usually,therewillthenbeadifferenceinthetimingbetweenthesubcontractorreceivingpaymentfromthecardcompanyandthecontractorreceivingandpayingagainstastatementonwhichthatparticularchargeappears.Thecontractorsarrangementsforpayingandaccountingforthesechargeswillaffectthetimingofwhensuchpaymentsmustbeenteredontothemonthlyreturn.Ifthecontractorsaccountingsystemwillnottreatthesubcontractorsinvoiceashavingbeenpaiduntilpaymentismadetothecardcompany,thenthatwillbethepointatwhichthepaymentshouldbeincludedonthemonthlyreturn.Althoughthereisnoparticularreasonwhycardscannotbeusedtomakepaymentstosubcontractorspaidunderdeduction,doingsowouldleadtoanumberofproblems.Theseincludethetimingofthepaymentoftheamountdeducted,therecordingofthepaymentanddeductionontherelevantmonthlyreturnandtheissueofthedeductionstatementtothesubcontractor.Wethereforerecommendthatcontractorsshouldrestricttheuseofpaymentcardstothosesubcontractorspaidwithoutdeductionortocoveronlythecostofmaterials.

Somecontractsallowthecontractortoretainapercentageofthecontractpriceforaperiodaftertheconstructionworkhasbeencompleted.Thisisdonesothatifdeficienciesintheworkbecomeapparentduringthe'retentionperiod',thefinalpaymentcanbewithhelduntilthesubcontractorhasmadegoodthefaults.

48


49/85


6.27

6.28

Reverse 6.29premiums

Paymentsmade 6.30under

a

Private

FinanceInitiativearrangement

6.31

Moreinformation

Therearenospecialrulesforretentionpaymentsandtheyaretreatedthesamewayasanyotherpayments.Whethertheretentionpaymentismadegrossorunderdeductiondependsonthesubcontractor'staxstatusatthedateofpaymentandnotwhentheworkwasactuallydone.Atthetimeofpaymentoftheretention,thecontractormustdecidewhethertheymustverifythesubcontractor(inaccordancewithparagraphs3.2to3.16)andthenmakethedeductionrequiredunderthescheme.

Reversepremiumisthetermcommonlyusedtodescribewhenalandlordordeveloperoffersinducementstoprospectivetenantstotakeupaninterestinland.Anexampleofaninducementispaymentofallorpartofthecostsoffittingouttheproperty.Suchinducementsareexcludedfromthescheme.

ThePrivateFinanceInitiative(PFI)isaformofPublicPrivatePartnership,

aimed

at

enabling

the

public

and

private

sectors

to

workmorecloselytogetherbymakinguseofprivatecapitalandexpertiseintheprovisionofpublicsectorinfrastructureandservices.PFIcontractsareoftenforlongperiods,typically20to30years.CommontypesofPFIinclude: servicessoldtothepublicsectortheprivatesectorprovides

thecapitalassetsandthepublicpurchaserpaysonlyondeliveryofthespecifiedservices

financiallyfree-standingprojectstheprivatesectordesigns,builds,financesandoperatesanasset,recoveringthecoststhroughdirectchargesontheprivateusersoftheasset

jointventuresthecostsofaprojectarenotmetentirelybythechargesonendusersbutaresubsidisedfrompublicfunds.

PaymentsmadebyapublicbodyunderaPFIarrangementarespecificallyexcludedfromtheConstructionIndustrySchemeandtheschememustnotbeappliedtosuchpayments.IfyouhaveanydoubtaboutwhetheranarrangementisoutsidethescopeoftheschemebecauseitshouldqualifyasaPFIarrangementyoushouldphoneuson08453667899.

49


50/85


Groupcompanies 6.32 Thedefinitionofgroupcompaniesforthepurposesofcertainaspectsofthescheme,iscontainedatSection413(3)(a),Income

andCorporationTaxesAct(ICTA)1988.Basically,twocompaniesaredeemedtobemembersofagroupifoneisatleasta75percentsubsidiaryoftheother,orbothcompaniesareatleast75percentsubsidiariesofathirdcompanyandsoon.

Managingagents 6.33 Whenamanagingagentisactingforaprincipalorclientinlettingcontractsthatincludeconstructionoperations,the

managingagentwillnotgenerallybeacontractorasdefinedwithinthescheme.Thisisbecausethecontractforconstructionoperationswillmorelikelybebetweentheprincipalandthesubcontractor.Themanagingagent'srolewouldbetoseethattheworkiscarriedoutinaccordancewiththeprincipal'scontractwiththesubcontractorandmayincludemakingpaymentstothesubcontractor.

6.34 Wherethecontractbetweentheprincipalandthemanagingagentincludesthemaintenanceofthepropertyandtheagententersintoacontractontheirownbehalf,eventhoughthisisdoneunderthetermsoftheservicecontractbetweentheagentandtheprincipal,theagentwillbeactingasacontractorwithinthescheme.

6.35 Paymentsmadeunderacontractbetweenthemanagingagentandthesubcontractormayalsofallwithintheschemewhereitisamixedcontract,forexample,whereitincludeselementsofsecurity,cleaning,minorrepairsandmaintenance.

Schemerepresentatives

6.36 Acontractorthatisacompanywithinagroupmaybeauthorisedtoappointanotherofthecompanieswithinthesamegrouptoundertakeitsobligationsunderthescheme.Forexample,agroupofseveralcompaniesrequiredtooperatetheschemecouldchooseasinglecompanywithinthegrouptooperateCISontheirbehalf.

6.37 Theschemerepresentativemustcontinuetomakereturnsandpaymentstousunderthenameofthecompanyorcompaniesforwhichitisacting.

50


51/85


Unofficialforms

Eachcompanythathaschosentohaveitsschemeobligationshandledbyanothercompanywithinitsgroupwillalwaysremainliableforanyobligationsithasundertheschemeeventhoughithaschosenanothercompanytooperatetheschemeonitsbehalf.Torequestauthorisationinthesecircumstances,pleasephoneuson08453667899.

Nosubstituteformsmaybeused.Ifaformhasbeenlostormislaid,pleaseaskusforanother.However,contractorswillneedtocreatetheirownstatementsoftaxdeductionforthosesubcontractorsfromwhomdeductionshavebeenmade.Paragraphs3.25to3.27andAppendixEgivemoreinformationonthis.

6.38

6.39

6.40

51


52/85


Thescopeofconstructionoperations

Contractsrelatingtoconstructionoperations

AppendixAA.1 ThisAppendixgivesinformationonthescopeofconstruction

operationsaswehaveinterpreteditfromthelegislationinSection74,FinanceAct2004.WehavereproducedSection74,FinanceAct2004inAppendixBforyourreference.

A.2 Whatisacontract?Acontractmaybe: written,or agreedbywordofmouth.Regardlessoftheformofthecontract,thecommoncharacteristicwillbethattherewillbeapaymentbyacontractortoasubcontractorandthecontractwillrelatetoconstructionoperations.

A.3 Manycontractsintheconstructionindustryareagreedbywordofmouth.Thiswillnotnormallystopthemfrombeinglegallybindingonbothpartiesandmeanstheywillcomewithinthescheme.

A.4 Writtencontractscanvaryinsizeandcomplexity.A.5 Whenyouhavedecidedthatacontractorandasubcontractorare

partiestoacontractandthatthecontractisnotoneofemployment,youneedtodecidewhetheritisacontractthat'relatestoconstructionoperations'.

A.6 Whendoesacontractrelatetoconstructionoperations?'Relatesto'isverybroadinitsmeaning.Anycontractthathasconstructionoperationsincludedinit,howeversmallapartthatmaybe,willfallwithinthescheme.

52


53/85


A.7 MixedcontractsIfacontractincludessomeworkthatiswithintheschemeandsomethatisnothingtodowithconstructionatallthenallpaymentsmadeunderthatcontractwillcomewithintheschemeevenifshownonseparateinvoices.Thesetypesofcontractsareoftenreferredtoasmixedcontracts.

A.8 ContractsthatrelatetoconstructionoperationsbecausetheworkcontributestotheoveralldeliveryofaconstructionprojectSomecontractswill'relatetoconstructionoperations'becausetheyincludeworkthatcontributestotheoveralldeliveryofaconstructionproject.Forexample,atreesurgeonmayhavemanycontractsinayearfortreefelling.Treefellingisnotnormallyaconstructionoperationinitself,butifthetreesarecutdownaspartofworktoclearasitereadytobuildahousingestateoraroad,paymentsforthetreefellingwillbewithinthescheme.Thismeansthatitisnotpossiblesimplytolookatthetypesofworkcarriedoutbyabusinesstodecidewhetherthebusinessisacontractororsubcontractor.Contractsfortheworkwillsometimesbecoveredbytheschemeandsometimeswillnot.

A.9 Contractsthatdonotspecificallyprovideforconstructionoperations'Constructionoperations'refersnotonlytoparticularworks,butalsototheworkthatpeopleneedtodoinordertocarryoutthoseoperations.Thismeansthatacontractrelatingtoconstructionoperationscouldincludeacontractthatdidnotspecificallyprovideforoperations,butwhichdidprovidefortheprovisionoflabourtocarryoutthoseoperations.

A.10 Anexampleofthiswouldbewhereasubcontractorwasunderadutytoprovidethelabourofscaffolderstoacontractor.Theworkofscaffoldersiswithintheschemewhenitispreparatoryorintegraltoconstructionoperationstakingplace.

53


54/85


Construction A.11 TherestofAppendixAgivesguidanceonoperationsthatareoperations regardedasconstructionoperationswithintheschemeand

operationsthatareregardedasnon-constructionoperations.PleasereadtheseparagraphsinconjunctionwiththetableinAppendixC.

Moreinformation Itisnotpossibleforustogiveexhaustiveinformationinthisguidancebooklet.Ifyouareunsurewhetheranyworkiswithinthescopeofthescheme,pleasecontactusforadvice.Phone: 08453667899Internet: www.hmrc.gov.uk/cis

Construction Description Legislation Paragraphoperations (SeeAppendixB)includedwithin Buildingsandstructures S74 (2)(a) A.12thescheme

Construction " " A.13Alteration " " A.14Repair " " A.15Extension " " A.16Demolition " " A.17Dismantling " " A.18and19Worksformingpartoftheland " (2)(b) A.20to22Installationofsystems " (2)(c) A.23Internalandexternalcleaning " (2)(d) A.24and25Paintinganddecorating " (2)(e) A.26Integralworks " (2)(f) A.27Preparatoryworks " " A.28Finishingoperations " " A.29

A.12 BuildingsandstructuresMostconstructionoperationsarecarriedoutasworkonbuildingsandstructures.Theoperationscanbe: permanent temporary offshore.

54


55/85


Thesixmainareasofworkare: construction alteration repair extension demolition dismantling.Eachoftheseisexplainedbelowinmoredetail.ConstructionConstructionisabroadtermthatcoversallofthefollowing: tobuild tomake toputtogether toassemble.Constructiondoesincludetheassemblyofprefabricatedunitsandsitefacilities.ExampleTheonshoreconstructionofwindturbinetowersandmodularelementsofwindturbinetowersthatarelatertowedtotheirfinallocationatseaisanexampleofhowbroadweregardthedefinitionofconstruction.

A.13

A.14 AlterationAnalterationiswhereabuildingorstructurehasbeenmadedifferentinanyway.Alterationscanbemajororcanbeassimpleasanadjustmentormodification.

55


56/85


MoreinformationA.15

A.16

A.17

A.18

A.19

ExamplesAnalterationtothefabricofabuildingtoaccommodate

equipmentsuchasanitemofplantormachinery,lifts,hoistsorheavy-dutyconveyors.

Analterationtoaccommodateabuildingservicesystem(seeparagraphA.23Installationofsystems).

Removalofasbestos. Installationofpartitioningorshopfittingstoallowthebuilding

tobeusedinadifferentway.

OurNotice708VAT:BuildingsandconstructionexplainsthemeaningofalterationsforVATpurposes.RepairRepairincludes'makinggood'andreplacementofdefectiveordamagedpartsofabuildingorstructure.Repairsalsoincluderepairofabuildingorstructurethatisnecessaryfollowingarepairtoanysystemsinthebuildingorstructure,eventhougharepairtothesystemitselfisnotaconstructionoperationforthepurposesofthescheme(seeparagraphA.23Installationofsystems).ExtensionExtensionmeansaddingtoorenlarginganexistingbuildingorstructure.DemolitionDemolitionmeanspullingdownabuildingorstructure.DismantlingDismantlingmeanstakingabuildingorstructureapart.Thisisusuallywherethematerialsareexpectedtobeusedagain.Sometimespartofabuildingmaybedestroyedordismantledpriortoarefurbishmentortoitsusebeingchanged.Oftenthistypeofworkwillbeanalterationtothebuildingorstructureaswellandthelegislationisbroadenoughtoincludeanyworkthatinvolvesanyofthefollowing: takingabuildingorstructureapart totallydestroyingabuildingorstructure

56


57/85


A.20

A.21

A.22

A.23

rebuildingabuildingorstructure alteringabuildingorstructure.Theresultingbuildingorstructuremaybepermanentortemporary.WorksformingpartofthelandAlltypesofconstructionworkthatdonotinvolvebuildingsorstructuresarecalledworksforming,ortoform,partoftheland.Examples Minorworks,suchasawoodenfencewithconcreteposts.

Majorworks

such

as

roads,

railways,

bridges,

harbours

and

powerlines.

Industrialplantsuchaspetrochemicalplant,asilo,tankorwatertreatmentplant.

Plantthatislocatedinabuildingwillnotformpartofthelandandsowillnotfallwithintheschemeunderthissection.However,insomecircumstancestheinstallationofplantmayrequirethatthebuildingbealteredtoaccommodateorremovetheplantsothiswillstillbeaconstructionoperation.Alteration,repair,extension,anddemolitionofworksformingpartofthelandarealsoconstructionoperations.InstallationofsystemsAsystemissomethingthatismadeupofconnectedpartstoperformaparticularfunctionsuchassystemsofheatingorlighting.Theschemeincludestheinstallationofsystems.Assuch,itincludestheinstallationofcompletesystemsratherthanpartsofasystem.Completesystemswillbeinstalledinnewbuildsorexistingbuildingsandstructuresundergoingreapply-development. Repairstoasystem,suchasnewtapsonasinkoranextensiontoasystemsuchasaddinganextraradiatorarenotinstallationsofsystemsandarethereforenotincludedwithinthescheme.

57


58/85


A.24 InternalandexternalcleaningInternalcleaningisregardedasaconstructionoperationifitisundertakenwhilsttheconstructioncontractisongoing.

A.25 Externalcleaningorroutinecleaningofexistingcommercialorindustrialpremisesthatarenotundergoinganytypesofconstructionoperationsisnotregardedasaconstructionoperationunlessitispreparatorytopaintinganddecorating.

A.26 PaintinganddecoratingPaintinganddecoratingisregardedasaconstructionoperation.

A.27 IntegralworksIntegralworksareworksthatmustbecarriedoutforaconstructionoperationtobecompleted.ExampleErectionofscaffoldingmightnotbeconsideredtobetheconstructionofastructureinitsownright,butitisaconstructionoperationbecauseitwouldnotbepossibletocarryoutotherworksthatareconstructionoperationswithoutit.

A.28 PreparatoryworksPreparatoryworksareworksthatmustbecarriedoutbeforeaconstructionoperationcanbestarted.ExampleClearingasiteordraininglandinafloodplainbeforebuildinghouses.

A.29 FinishingoperationsFinishingoperationsareworkthat'renderscomplete'or'finishesoff'anyoftheconstructionoperationsinthepreviousparagraphs.ExampleInmostmoderncommercialbuildingsmuchoftheinternalfixturesandfittingswillbeincludedinthedesignspecificationsandabuildingwillnotbeconsideredcompletewithoutthem.

58


59/85


A.30

A.31

A.32

A.33

Finishingoperationsarenotregardedasconstructionoperationsintheirownright.Theymustbeconsideredaspartoftheoverallworkthatisbeingcarriedoutaswellaspartofthecontractasawhole.Often,thesameworkwillnotbeaconstructionoperationwhenitiscarriedoutasanindependentactivity.

Non-

constructionoperations

ExamplesTreeplantingandlandscapinginthecourseofforestryor

estatemanagementarenotconstructionoperations.Treeplantingandlandscapingaspartofanewhousing

developmentareconstructionoperations.

Theonlyexceptiontofinishingoperationsiscarpetfitting.OurStatementofPractice(SP12/81)providesthatcarpetfitting(butnootherfloorcovering)isregardedasexcludedfromthescheme.However,ifcarpetfittingispartofamixedcontract,thenallthecontractcomeswithinthescheme.SeeparagraphA.7.

SomeoperationsarespecificallyexcludedfromtheschemeandtheseareexplainedinparagraphsA.34toA.45below.Whereacontractincludesoperationsthatareconstructionoperations,andoperationsthatarenotconstructionoperations,allpaymentsforbothtypesofworkwillfallwithinthescheme.Description Legislation Paragraph

(SeeAppendixB)Drilling S74 (3)(a) A.34Extraction " (3)(b) A.35and36Manufactureofbuildingorengineeringcomponentsanddelivery " (3)(c) A.37Manufactureofcomponentsforsystems " (3)(d) A.38

59


60/85


A.34

Description Legislation Paragraph(SeeAppendixB)

Professionalwork " (3)(e) A.39and40Artisticworks " (3)(f) A.41Signwritingandsignboards " (3)(g) A.42Seating,blindsandshutters " (3)(h) A.43Securitysystems " (3)(i) A.44and45DrillingDrillingworkconnectedwithactual,physicalextractionofmineralsornaturalresourcesisnotaconstructionoperation.

A.35 ExtractionExtractionofmineralsornaturalresourcesisnotaconstructionoperation.Extractionincludes: drillingforoilandgas pumpingofoilandgas diggingforcoalandothermineralsfromundergrounddeposits removalofcoalandothermineralsfromundergrounddeposits

associatedsurface

workings,

such

as

open

cast

mine

quarrying.

A.36 Workconnectedwiththeprimarypurposeofmineralextractionis

notaconstructionoperation.Thisincludes: tunnelling,boringandshoringuptunnelsinmines installingrailsystems,conveyorsystemsandothersystems.Thisisincontrasttotunnellingdoneinconnectionwiththeconstructionofamainlinerailwayforexample,whichwouldbeaconstructionoperationbecauseitisanintegralpartoftheconstructionofaworkformingpartoftheland.

A.37 ManufactureofbuildingorengineeringcomponentsanddeliveryManufactureofthefollowingisnotaconstructionoperation: buildingorengineeringcomponents buildingorengineeringequipment buildingorengineeringmaterial buildingorengineeringplant buildingorengineeringmachinery.Deliveryoftheseisalsonotaconstructionoperation.

Documents

Construction Industry Scheme