If you’re a business owner outside the construction industry, then it’s quite likely that your knowledge of the Construction Industry Scheme (CIS) is limited, and understandably so. The scheme requires contractors to deduct money from subcontractor payments to pass on to HMRC, which count towards the subcontractor’s National Insurance and tax as advance payments. Under CIS, a ‘contractor’ is defined so that non-construction businesses are excluded from these regulations unless they have a yearly expenditure of over £1 million on construction operations, measured as an average over a three-year period.
However, if you become personally involved in construction work being carried out on business properties, such as arranging for the work to be done or contracting the builders, you could find yourself unwittingly subject to CIS regime obligations, including the deductions from subcontractor payments and accounting for it to HMRC.
A recent case involving the director of companies which owned nursing homes illustrates the issues which can arise. The director took on the role of arranging construction work on one of the nursing homes when improvements were needed. It came as quite a shock to him when HMRC assessed him after not making the necessary deductions under CIS for payments made to three subcontractors, as well as imposing penalties upon him for failing to make CIS returns.
The director had no choice but to concede that he had acted as a contractor, as the construction workers entered into contracts with him and it was he who was responsible for paying them for the work. However, the director appealed the case arguing that he was genuinely unaware of the need to comply with CIS in this instance; the appeal was successful due to the ‘unusual’ nature of the case, and the director was relieved of all liabilities and penalties.
Not every business owner will be so lucky, and even if they are, it is a much better idea to exercise caution when arranging construction work on business properties in order to avoid unexpected assessments by HMRC. One way to do this could be to engage contractors through your business rather than as an individual. As a non-construction business, this will remove any liability for deductions to be made.
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