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Construction Industry and tax

All active building contractors and building subcontractors are subject to HMRC regulation. The rules they have to abide by are set out in the Construction Industry Scheme (CIS). Essentially, contractors cannot pay their subcontractors without stopping tax. Only in specific circumstances can payments be made without deduction of tax.

The scheme operates a little like the PAYE system with one important difference – contractors are not required to deduct National Insurance Contributions from the payments they make to subcontractors.

Unfortunately, your business can still be considered a contractor (and therefore subject to the CIS) even if your main business is nothing to do with construction. Under the CIS rules you are a contractor if:

  • you run a business that engages subcontractors for construction operations – a 'mainstream' contractor
  • you run a business that spends an average of £1 million or more a year over a three year period on construction operations – a 'deemed' contractor

Businesses that are deemed to be engaged in construction include:

  • businesses like manufacturers or retailers
  • local authorities
  • government departments
  • housing associations and 'arm's length' management organisations (ALMOs)

If your business or organisation becomes a deemed contractor then it'll remain one until it can show HMRC that its spending on construction work has fallen below £1 million a year for three years in a row.

The normal CIS rules for contractors also don't apply when:

  • a deemed contractor pays for a small construction contract of less than £1,000 – excluding materials costs – and has authorisation from HMRC to exempt it
  • a contractor pays a subcontractor less than £1,000 – excluding materials costs – to do construction work on the subcontractor's own property – or on any agricultural property where the subcontractor is the tenant – and has authorisation from HMRC to exempt it
  • the governing body or head teacher of a local education authority maintained school pays for construction work on behalf of the local education authority
  • a charitable body or trust – but not its trading subsidiary – pays for construction work

Private householders are never treated as CIS contractors, no matter how much they spend on construction operations.

This entry was posted on Thursday, June 12th, 2014 at 12:00 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

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