The current Construction Industry Scheme rules have been in place now since April 2007 and have been left largely unchanged in that time. That passing of time has not removed the doubt, questions and misunderstandings about the application of the scheme.
The biggest problem with CIS is that in many cases, companies are not even aware that they are operating CIS incorrectly. It is assumed what they are doing is correct, because that is what they have always done. Simple errors can however have profound consequences and it is worth checking that some of these common mistakes are not taking place:
- Gross pay companies not included on CIS returns because no tax was stopped. All service providers that are paid for construction services should be included on CIS returns irrespective of whether they are gross pay, net or higher rate deduction.
- Expenses being paid gross. It may seem unfair that a subcontractor can incur the cost of an expense when carrying out services but have that payment subject to CIS deduction when reimbursed, but that is how the rules should be applied. This is something that many companies overlook because the subcontractors are out of pocket until they complete their tax returns,
- Unsure whether it is subject to CIS? This is the area we get the most questions about and it is understandable as it is not always clear. If in doubt, give us a shout and find out the answer. If you are paying
- Agencies and umbrella’s not being subject to CIS. They may not be ‘construction’ businesses themselves (and may even pay all workers on a PAYE basis), but the workers are providing construction services and so the invoice from an agency or umbrella would be subject to CIS.
When CIS is repeatedly operated incorrectly, the liabilities can rapidly amount to hundreds of thousands of pounds in penalties from HMRC plus the prospect of losing gross payment status. All because of a simple misunderstanding or innocent error that could have been avoided if HMRC had not found it first.
HMRC will not accept ignorance of the rules as an excuse, especially if you’re a construction business who would be expected to understand the rules.
As specialists in CIS disputes and helpline advisors for organisations like Professional Fee Protection and Taxaction, Sarah and Kye get a lot of CIS queries from accountants and construction companies. If you have any questions or concerns about CIS, or would like us to review your operations to ensure everything is correct, get in contact with us.