We are a contracting firm and have a subcontractor who supplies & fits carpets for us on construction sites, and who is CIS registered (standard deduction rate). Carpet fitting is excluded from the CIS under Statement of Practice (SP12/81). However, on some contracts he fits vinyl flooring, an activity that is included in the CIS scheme. On these we deduct tax on the labour element of payments to him.
On some contracts he fits both carpet and vinyl flooring, and it if both of these activities are carried out on the same contract then CIS340 says all payments made under that contract fall within the Scheme – even if shown on separate invoices.
In such a case, are all payments for the labour element subject to deduction, including the labour for the carpet fitting? Or should we simply show all of the transaction on our CIS return but deduct tax purely on the non-carpet fitting labour?
If the latter is not the case, would it be advisable to have a separate contract for construction & non-construction activities, or would they be deemed to be two parts of one CIS "included" contract?
John Morris
Replies (3)
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Ah-ha, I see what you mean.
I think the decision if you are allowed to do this is one for HMRC as they are the ultimate arbiter of whether or not you can split the work within one Client Contract into CIS taxable and non-taxble subcontracts.
However, clause 2.40 of CIS340 defines a 'Contract' as "A contract means any legally binding agreement or arrangement under which one individual or business does work or provides services for another individual or business. A contract includes an agreement made by word of mouth as well as a written document."
I'll cover myself by saying this is not advice, but this clause appears to say that you can do what you want because the HMRC appear to be defining a 'contract' as an agreement.
I think you've answered it yourself...
by saying "if both of these activities are carried out on the same contract then CIS340 says all payments made under that contract fall within the Scheme – even if shown on separate invoices."
I think that means ALL payments, including carpet laying.
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