The purpose of the Construction Industry Scheme (CIS) is to help prevent non-payment of tax due on the income received by subcontractors undertaking construction work. This is achieved by shifting the responsibility for the tax deduction and payment to HMRC from the subcontractor to the contractor that is paying for the work to be carried out.
This sounds straightforward, but the scope of the scheme is much wider than many people appreciate, meaning businesses that would not normally be considered as traditional ‘construction’ businesses face responsibilities under the scheme.
We can help our clients understand whether the work they are paying for falls within the CIS scheme and what their obligations may be. The rules can be complex, and the penalties for non-compliance can be punitive, so our approach is to assist our clients with the steps they can take to remove risk from their business, and to ensure that they are fully compliant.
If CIS was not applied correctly, it may be necessary to correct the position. We can assist the contractor by helping them file backdated CIS returns or by making a disclosure to HMRC. A disclosure removes the risk of a discovery assessment and increases the likelihood of claiming additional relief, thus reducing the level of the settlement, but it is not always the best solution.
We can assist with:
- Registrations as a ‘contractor’, a ‘subcontractor’ or both
- Registrations for overseas companies carrying out work in the UK
- Applying for Gross Payment Status
- Filing monthly CIS returns, and calculating CIS tax payments due to HMRC
- Reclaiming CIS repayments from HMRC
- Dealing with CIS tax enquiries raised by HMRC
- Reviewing existing processes and helping to put in place improvements to reduce risk to the business
- Disclosures to HMRC of previously undeclared CIS liabilities
Case Study – Taking Appropriate Action
A property developer considered themselves to be “money men” rather than CIS contractors because they engaged a main contractor to run the whole project and did not undertake any construction work themselves. The CIS guidance specifically refers to property developers as contractors in these circumstances and the property developer should have applied CIS and deducted 30% tax from all payments made to the main contractor.
The potential tax liability was initially £20M, but we quickly reduced the tax at risk to £1.5M. We were then able to claim relief for tax settled by the subcontractor and after a battle with HMRC, secured an outcome where penalties of £17,500 were settled, but no tax or interest.
The moral of the story is that – if you are paying another business for construction services, you must consider whether these payments are within scope of the CIS scheme and take appropriate action before making any payments.
Want to see more ways we’ve helped our clients? Click on our CIS Case Study Zone Below:
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