Most building contractors will know about the Construction Industry Scheme and its associated regulations. However, many people are unaware that CIS rules can also apply to certain types of domestic work.
Work on an existing domestic property usually falls outside the scheme, but some aspects can be caught. For example, if a plumbing company is engaged to renovate a bathroom, there is no need to register as a contractor and operate CIS. But if the work includes installing an electric shower and the plumber subcontracts to an electrician, this work would fall within CIS leaving the plumber at risk if it is not handled appropriately. In short, if the person engaged by the customer uses anyone other than himself or an employee to do the work, it probably falls under the CIS scheme.
The plumber can easily overcome this problem by asking the customer to engage the electrician directly, but this is not always practical. The customer may want to engage just one person so they know who is responsible for rectifying any problems.
Furthermore, it is not just building work that can be caught; many associated activities can also fall under the scheme. For example
- Fitting carpets is outside the scope of CIS, but fitting vinyl or laminated wooden flooring is caught.
- A fire warning system is outside, but a sprinkler system is within CIS.
- Landscaping and tree planting are generally outside CIS, but not when in connection with a new build.
- The supply of scaffolding is outside CIS, but not its erection or dismantling.
The problem is that not applying the rules when you should can be very expensive. Not only do you end up paying someone else’s tax, the amount you actually paid could be treated as being net of tax, thus increasing the liability even further. And for good measure HMRC will want to charge interest and penalties, so you could find yourself with an HMRC bill that is almost as large as amount originally paid to the subcontractor.
To add to your woes, this failure can lead to the loss of other tax advantages, such as your own gross payment status, as well as resulting in expensive and time consuming tax enquiries with HMRC checking to see if there is anything else wrong.