What defines a property investor as opposed to a developer
A new client has been advised by HMRC that their property investment company is a developer for CIS purposes.
The company has been holding property for rent since 1890 and many properties currently held were bought before 1940! The company spent money doing up and extending a listed cottage which was then let out. HMRC assessed the company for CIS tax not paid because they said this was development.
The case goes against all that I understand about CIS.
Quotes from the compliance officer are as follows:
"Any business that engages a subcontractor to undertake construction operations to property which they intend to hold as an investment, hold for rent or for resale, will have put themselves in the position of a property developer."
"if a property investment business held of acquired property and the carried out significant work to it that repaired, extended or converted the property, for the purposes of the scheme, this is more than being just an investor and brings the business into development that includes construction operations"
This seems contracdictory to CISR 12040?
Has anyone any previous with HMRC on this sort of thing? Any case law to direct me to?
Monetary Value of Renovations
I think there is a monetary value with regard to this. If any business spends more than 1 million (I think!!) on any building project/ renovations then they must register for CIS purposes.
Deemed contractors
Under CISR 12050 -
"Under the Scheme, some businesses, public bodies and other concerns outside the mainstream construction
industry, but who regularly carry out or commission construction work on their own premises or investment properties, are deemed to
be contractors." The next para states the value of qualifying expenditure as £1 mil. Plse see
http://www.hmrc.gov.uk/manuals/cisrmanual/CISR12050.htm
CI Inspectors say No
We just recently (last week ) had a client inspected by the Revenue with regard to his CIS scheme. As well as being a contractor/general builder & propert developer, the client has, over the last few years, purchased about 15 properties as buy to lets. When they were booking the inspection I asked the Revenue to check if he should be operating CIS on the subbies he uses when they are engaged on his buy to lets. The answer was no, as he was the end client in that case. However he has been operating it on the subbies as they prefered to have the tax paid. The Revenue lady said - ok they don't care if he does that, as long as they get their money, - so no problem operating it when you don't need to. Big problem the otherway round.
I would certainly look into apealing against this, as, if the Revenue are allowed to get away with it, the penalties for non compliance (the bloody monthly returns alone) will be crippling if they go back 6 years.
Tom
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Not sure on case law
as to my knowledge there has been very little on CIS - willing to be corrected.
Looking at the 12*** sections of the CIS manual, I guess the main approach would be to show that the extension work was incidental to the business as a whole rather than integral
ie 100 properties held, 98 properties renovated on a rolling scheme, 1 renovation included extending the living space
if however there were several construction type renovations, extensions etc then it would go the other way.
But as somebody who has far too much contact with the CIS people, I strongly support you in trying to not get involved with it!