Construction Industry

Construction Industry

Construction IndustryIf you are working in the construction industry, then you will have to comply with requirements of the Construction Industry Scheme. As your Accountant, we can assist you to comply with the onerous requirements of the Scheme for your business.

The Construction Industry Scheme (CIS) sets out special rules for tax and national insurance (NI) for those working in the construction industry. Businesses in the construction industry are known as ‘contractors’ and ‘subcontractors’. They may be companies, partnerships or self employed individuals.

The CIS applies to construction work and also jobs such as alterations, repairs, decorating and demolition.

Contractors and subcontractors

Contractors include construction companies and building firms and also government departments and local authorities. Any other business spending more than £1 million a year on construction is classed as a contractor for the purposes of the CIS.

Subcontractors are those businesses that carry out work for contractors. Many businesses act as both contractors and subcontractors.

Monthly return

Contractors have to make an online monthly return to HMRC:

  • confirming that the employment status of subcontractors has been considered
  • confirming that the verification process has been correctly dealt with
  • detailing payments made to all subcontractors and
  • detailing any deductions of tax made from those payments.

The monthly return relates to each tax month (ie running from the 6th of one month to the 5th of the next). The deadline for submission is 14 days after the end of the tax month. If you do not have any payments to subcontractors for the month, then you will need to file a nil submission for the month. Failure to submit a return on time (including nil return) will result in a penalty starting at £100.

Identification

Subcontractors must give contractors their name, unique taxpayer reference and national insurance number (or company registration number) when they enter into a contract. So long as the contractor is satisfied that the subcontractor is genuinely self-employed, the ‘verification’ procedure (explained below) must be followed.

Employed or self-employed?

HMRC prefer to have as many taxpayers classed as employed as opposed to self employed, as possible, for the simple reason being, that this would enable HMRC to collect more tax and NI contributions. The employment status of a worker is determined by the circumstances of the engagement between the subcontractor and the contractor and is not a matter of choice. Unfortunately this can be a grey area and there are no single hard and fast rules to help you to determine the status of a worker. HMRC have regularly challenged the worker status and as a result, we now have a variety of tests, to help establish the worker status. These are:

  • the right of control over how, what, where and when the work is done; the more control that a contractor can exercise, the more likely it is that the worker is an employee
  • whether the worker provides a personal service or whether a substitute could be provided to do that work
  • whether any equipment is necessary to do the job, and if so, who provides it
  • the basis of payment – whether an hourly/weekly rate is paid, whether there is any overtime, sick or holiday pay and whether or not invoices are raised for the work done
  • whether the worker is part and parcel of the organisation or whether they are conducting a task which is self-contained in its own right
  • what the intention of the parties is – whether there is any written statement that there is no intention of an employment relationship
  • whether there is a mutuality of obligation; that is, an ongoing understanding that the contractor will offer work and the worker accepts it
  • whether the workers have any financial risk.

HMRC have developed software known as the employment status indicator tool, which is available on their website, to address this matter but the software appears to be heavily weighted towards re-classifying subcontractors as employees. It should not be relied on and professional advice should be taken if this is a major issue for your business. Please talk to us if you have any particular concerns in this area.

A key part of the CIS is that the contractor has to make a monthly declaration that they have considered the status of the subcontractors and are satisfied that none of those listed on the return are employees. HMRC can impose a penalty of up to £3,000 if contractors negligently or deliberately provide incorrect information.

Verification

The contractor has an obligation to verify the subscontractors working for them and to ensure the correct amount of tax is stopped on any payments made to them, which will either be 20%, 30% or no deductions (gross payment).

This process is done online and simple to do. We can either do this for you or help set you up to do this yourself.

A payslip or Statements

Each month contractors have to provide a monthly ‘payslip/statement’ to all subcontractors paid, showing the total amount of the payments and how much tax, if any, has been deducted from those payments. The contractor has to pay the tax deducted to HMRC each month. We would email you details of how much to pay and how to pay as part of our service. We use specialist software to generate these payslips/statements and email these to you monthly. Alternatively we can help you do this yourself and provide you support on a consultancy basis.

What about subcontractors?

If a subcontractor first starts working in the construction industry on a self-employed basis they will need to register for the CIS. They can do this themselves using the HMRC website and completing form CWF1. They will have to complete a self assessment tax return each year.

Alternatively, please ask them to contact us. We can provide them with our tax return services for CIS workers.

Gross payment status

We would always recommend clients applying to HMRC for gross payment status. This will allow you to get paid without having CIS tax stopped. The main benefit for doing this is that it will then be clear if you have been paid in full for work done as quite often we meet clients who have lost track on what CIS tax has been stopped and what HMRC have refunded. Any under payments from HMRC are difficult to trace and reclaim.

The only disadvantage to having gross payment status is that you will need to make sure you set aside money to cover your tax bills. If you have been used to having CIS tax money set aside then this might be difficult.

We can help you check your eligibility for gross payment status and to apply for it.

Why Choose Simon & Co to help you?

As you can see from the above, being in the construction industry is an extra administrative burden you could probably do without. At Simon & Co, we have a system in place to help automate the process. We can also tailor our services to fit around you and your needs. Some clients prefer us to do everything, other clients do the work themselves and come to us for the initial setup and then guidance along the way. We are flexible and are happy working with you to build a solution that works for you.

Please do get in touch if you would like further information about the Construction Industry Scheme. We can help you fulfil your duties as both a contractor and subcontractor.

Why not contact us today?

For more information on the above, please Contact Us or telephone on 0208 432 3419 and we will be glad to answer all of your questions. Even better, why not book your FREE consultation today, it only takes a minute. Just looking for an idea of costs? No problem! Visit our Request a Quote page, fill out a simple Form, then we will get back to you within 24 hours. That's a promise! Live local? If you are out and about in the Orpington, Bromley, Beckenham, Chislehurst or Kent area, why not give us a quick call to confirm if we can arrange an immediate, free consultation.