Is a Kitchen Company required to register for CIS?

New client is a Kitchen and Bedroom Manufacturer. Sales £1.4m. 45% of sales are to private customers and sub-contractors are used to do the fitting (£100k pa). Rest of Sales are to kitchen suppliers (not connected parties) who have their own customers and arrange their own fitters. As sales to privates are less than £1m per year (and have been for last 3 years), client is maintaining that they are only a "deemed contractor" and because the "construction work" is less than £1m pa they are not required to register for CIS.

I disagree. As I see it, the "deemed contractor" rules only apply to businesses which "spend" over £1m on construction operations "within" their business - not those whose main business, although not "construction" (but manufacturing), still perform some construction operations (i.e. kitchen fitting).

HMRC's booklet CIS340 is not exactly clear on the matter and one can respect my new clients for seeking to interpret it their own way.

As they have not registered for CIS, what penalties might there be, if they now register but it is found that they should have been registered years ago?

 

 

Comments

CIS & Kitchen manufacture

polln | | Permalink

In HMRC's CIS manual under the section CISR14220 - The Scheme: construction operations: manufacture and delivery - it specifies certain items that are within CIS amongst which is the following: 

"Installation of manufactured items under 'supply and fix' arrangements" - I think this applies to your client.

If your client should have been registered then there are penalties based on outstanding returns. If the client has never been registered they may be able to take advantage of the new penalty rules introduced by the Finance Act 2009 Sch 55 and in particular the penalty capping rules in Para 13. Under this arrangement penalties are capped at £3,000 plus a tax geared penalty of 5% of any tax payable on the outstanding returns.

 

 

CIS penalties

christiner | | Permalink

Agree 100% with Polln.

Also, CIS340 booklet, appendix C- operations included and excluded from CIS, on page 69 it says that kitchen insatllation is included. handy to show your client, perhaps?

I would suggest, that for the future, your client  remove these payments from CIS by getting the householders to pay the subbies direct.

 

Taxman

Registration required

Zeks1999 | | Permalink

The first point is that fitting kitchens is a construction operation as laid out in CIS340 "Installation of and repair to Kitchens and Bathrooms". The bedroom fitting would no doubt be caught in a wider decription (although they don't attempt to cover every single operation in the manual), but the kitchen fitting is explicit.

Secondly, the "deemed contractor" is a smoke screen, and not for companies in your clients situation. I can only assume this was set in place to fill a potential loophole of construction companies fronting as other businesses. The £1m average allows the, lets say, estate agent that has a few investment properties that need renovation not to be caught up in the CIS scheme. The revised scheme also has exceptions that allow large organisations who may invest in building and maintaining their own properties to fall outside the scope.

As far as I am aware there is no below £1m average "deemed contrator" that allows the "lets just ignore it" approach (by defenition a deemed contractor would surely have to operate the scheme, save for some exceptions?). I think you are very generous to suggest that your client has misenterpreted the rule :-)

 

jimeth's picture

Register ASAP

jimeth | | Permalink

Your client definitely needs to register asap and then file the overdue returns asap to minimise any penalties.

The only way of avoiding CIS on this, as already said would be to get the customers to pay the fitters direct so that the manufacturer is not directly involved in the fitting.

Another spin on it

mikeyhepburn | | Permalink

Based on your narrative I would have to disagree about registration and agree with your client that it is not required.

45% of sales are to private customers (I am presuming private households) with the rest being to kitchen suppliers.

Work on private households is not within CIS and the supply to other contractors is also not within CIS.

A call to HMRC will give you an answer but I would suggest a letter to the CT office asking if activities come under Section 74 FA 2004

ShirleyM's picture

Employing subcontractors

ShirleyM | | Permalink

UNLESS you are a private householders employing someone to fit your kitchen, it is virtually 100% guaranteed that this work will come under CIS. It is safer to make this assumptions and then look for reasons why it doesn't apply.

Having a contract with a householder, and employing subcontractors to do the work, means you become a CIS contractor, and therefore should apply the CIS scheme.

Construction operations on private dwellings are included

Zeks1999 | | Permalink

Just to clarify any confusion on work carried out for private householders and CIS.

As per the HMRC regulations: "If you are contracted to work in domestic households and you engage subcontractors you are a CIS contractor and will have to operate CIS. However, if you’re a private householder you’re not a contractor, no matter how much you spend"

Therefore the only way around it (as has been suggested before) is for the householder to pay the subcontractors directly (therefore removing their subcontract status in this scenario). In the current situation, the firm should be operating the scheme.

 

johnjenkins's picture

Registration

johnjenkins | | Permalink

Although domestics do not come under CIS rules, the fitting of kitchens (wherever they may be) fitted by subcontractors do. Therefor the contractor and subcontractors have to be CIS registered.

Unfortunately CIS catches a lot of business that really it wasn't intended to catch. Landscape garderners, fence erectors and many more have had to register.

The £1m rule only applies to Banks, solicitors, etc. (those whose normal business activities aren't anything to do with construction).

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