The CIS SCHEME
We are often asked the question as to what type of work is covered under the CIS legislation and what is excluded, we hope the article below sheds some light on what in practice can be confusing.
Firstly it is worth noting that the following types of work are excluded.
- In terms of planning: professional work (including the ancillary work of engineers, draughtsmen, scientists and technicians) of architects, surveyors or consultants in building, engineering, decoration (interior or exterior) or landscaping.
- In terms of site preparation: the delivery of materials and transport of spoil from site and scaffolding hire (with no labour).
- In terms of construction: the manufacture or off-site fabrication of components or equipment, materials, plant or machinery and delivery of these to the site. This includes traditional building materials, prefabricated beams and panels and ready-mixed concrete. Also excluded are the manufacture and delivery of prefabricated site facilities, the running of site facilities such as canteens, hostels, offices, toilets and medical centres and the supply of security guards.
- In terms of finishing operations: carpet fitting
The following types of work are included
Included is construction work to permanent or temporary buildings or structures and civil engineering works such as roads and bridges. Specifically, it includes:
- In terms of planning: none.
- In terms of site preparation: demolition of buildings and structures, tree-felling, preparation of site and site-clearance, access works, earth-moving on site, excavation, tunnelling and boring.
- In terms of construction: preparation and laying of foundations and piling, actual construction, alteration or repair of a permanent or temporary building or civil, chemical or other industrial.
- In terms of finishing operations: fitting of floor coverings, such as vinyl, linoleum (but not carpet) and laminated wooden flooring and the fitting of new locks, pigeon mesh, television aerials and satellite receivers, cleaning after construction works. Also included is the installation of refrigeration units. In each case, however, these finishing operations must render complete a building or structure that has been constructed or altered if they are to be included.
- Also included are the construction of site facilities and the installation of power lines, pipelines, gas mains, sewers, drainage, cable television and telecommunications distribution systems. Engineering work or industrial plant or structure to include storage tanks, silos, pylons, cranes or derricks and pumps.
Further detail of what is regarded as construction is provided by HMRC in Appendix A of Notice CIS340.
Geographically, the scheme covers work in the UK including the country’s territorial waters up to the 12-mile limit. While it does not apply to construction work carried on outside the UK, a business based outside this country but carrying out construction work here falls within the scheme and must register accordingly. The scheme covers all types of businesses and other concerns that work in the construction industry, including companies, partnerships and self-employed individuals.
Making a Monthly Return
Contractors must send a monthly return to HMRC including:
- details of all subcontractors
- details of payments made and any deductions withheld
- a declaration confirming that employment status of all subcontractors has been considered and
- a declaration that the verification process has been applied correctly.
Details of all payments made to subcontractors are to be detailed no matter if they are paid gross, with the standard deduction or net of the higher deduction.
Returns are to reach HMRC within 14 days of the end of the tax month.
Returns are to be sent electronically and contractors can sign in at www.gov.uk. Returns can also be submitted using some commercial software packages.
When accessing an electronic or internet return, contractors should, for the tax month to which the return relates:
- check any information already printed on the return
- add any new subcontractors that are not already shown
- enter details of all payments made to each subcontractor in the tax month together with details of any deductions that the contractor has made from those payments
- consider and sign (or confirm, if using an electronic or internet version) the two declarations on the return.
The return must show what has actually been paid and deducted in the month.
The monthly return must reach HMRC no later than 14 days after the end of the tax month to which it relates, even if discussions about matters arising from the return are still ongoing.
The return can be made:
- Electronically, using appropriate third-party software
- By electronic data interchange (EDI).
All CIS contractors have to make an electronic return every month, so even nil returns must be filed. A penalty will be incurred if it is not returned to HMRC by the original due date. If, however, a contractor does not plan to pay subcontractors for a period, HMRC can be contacted and asked for returns to be stopped for up to six months. It will then be the payer’s responsibility to tell HMRC when they intend to start paying subcontractors again.
CIS contractor monthly returns are liable to a new penalty regime which came into effect on 6 October 2011.
Each month contractors must send HMRC a payment for all deductions made. The payment is to be made within 14 days of the end of the month or within 17 days if made electronically. The payment is to be made even if the required deduction has not actually been made from the subcontractor’s payment.
Returns must be made even when there are no payments in that month. There are financial penalties for failure to submit a return. A new penalty regime came into effect on 6 October 2011. This introduced:
- £100 fixed penalty if the return misses its due date (the 19th of each month)
- second £200 fixed penalty if a return is two months late
- tax-geared penalty if the return is not filed six months after its due date — the greater of 5% of any deductions shown on the return or £300
- severe cases over 12 months late may also be made to pay up to £3000 or 100% of the CIS deduction, whichever is the highest.
Appeals against penalties can be made in writing to NICs and Employers Office, HM Revenue & Customs BX9 1BX. Penalties will be cancelled if HMRC is informed that no subcontractors were paid that month.
They must be made within 30 days of the date on the penalty notice and can also be made online at www.gov.uk.
The information contained in this article is for general information purposes only and does not constitute advice, Whilst we endeavour to keep the information up-to-date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability for a particular purpose. We recommend that professional advise should be taken from a suitably qualified expert before undertaking any action.