CIS deductions and Scaffolding subcontractor

CIS deductions and Scaffolding subcontractor

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My client a building contractor has an ongoing PAYE/CIS review. During this review it came to light that the scaffolding subcontractor splits their sales invoices 50% labour and 50% materials in order to calculate CIS deduction. My client has deducted CIS in accordance with this
HMRC inspector says categorically that it cannot be 50/50 and says that my client (the contractor) is responsible for making sure that the material element is correct - I do not know where this authority comes from
HMRC inspector also says that scaffolding subcontractor must know what his "materials" supply is. Since the materials represents hire, the cost of the hire is as long as a piece of string - (it is always hire and erect) - depending on how/ to whom/ for what/how long
Having spoken to the Scaffolding subcontractor and his accountant there is no agreement with HMRC re the 50/50 and they do not have a cost of hire

Can I have any comments from anybody as I fera we may be getting to a deadlock situation quite soon

Thanks
Stephen Payne

Replies (5)

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By spayne
08th Apr 2009 09:01

CIS and scaffolding
Thank you Euan and Penny for the information about the authority for contractor to ascertain materials cost.
In this case the subcontractor owns the scaffolding so I expect the only way to establish the "materials" cost would be to determine what would be the sale value of hire only for the particular job
David, I agree that the subcontractor is probably looking to exclude some part of the charge from CIS - so where the hire and erect form the same job is it your view that the whole is CIS deductable. Have you any authority for this (not being picky here) since the scaffolder is not my client

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By AnonymousUser
07th Apr 2009 18:29

Materials?
Seems to me that there is some confusion here as to the relevance of ‘materials’. Penny is quite correct in saying that a subcontractor can deduct the cost of scaffolding hire only if he does in fact hire the plant from a third party (ie he does not own it). And surely in that case the subcontractor can identify the cost of that hire.

But I suspect (because I have seen it before) that we are not talking about a deduction for cost of materials but something quite different. Is it the case that the subcontractor is trying to split his own supplies into two components – one being the supply of the scaffolding – outside CIS, and the other his labour costs – within CIS? If so, HMRC do not look too kindly on artificial or exaggerated apportionment to material-only supplies. In any event, I believe that only where there is genuine supply on hire without any labour element then the supply falls outside CIS. Otherwise, the entire supply falls within CIS and subject to deduction in appropriate cases.

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By Euan MacLennan
07th Apr 2009 13:12

CIS340
The HMRC inspector is right in saying that the contractor is responsible for making sure that the material element is correct. The rules are set out at para 3.23 of the CIS Guide CIS340, as follows:

"3.23 Materials

The contractor can ask the subcontractor for evidence of the direct cost of materials.

If the subcontractor fails to give this information, the contractor must make a fair estimate of the actual cost of materials. The contractor must always check, as far as possible, that the part of the payment for materials supplied is not overstated. If the materials element looks to be excessive, we may ask the contractor to explain why."

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By [email protected]
19th Nov 2019 09:20

My client is a scaffolder and they have been splitting their invoices 70/30 for hire/labour. They have had VAT inspections and passed with flying colours.
Recently HMRC have done a CIS inspection on the main contractor and have determined that the contractor should have deducted more CIS than they did and raised a penalty charge on them.
The scaffolder had only claimed what the contractor had deducted so HMRC have received the correct amount but now the contractor has to deduct the additional CIS tax and the scaffolder has to then deduct it too. The whole thing is nonsense!
How on earth was the contractor meant to know that the scaffolder's invoice was wrong? It certainly wasn't wrong when they had a VAT inspection so how can HMRC be so inconsistent.
The correct amount of money had gone to HMRC but now everybody has to shunt the money round! What if the scaffolder was no longer trading?
To add insult to injury they are now targeting all the contractors that the scaffolder worked for!

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Replying to [email protected]:
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By legerman
19th Nov 2019 12:43

carol-AT-du4accounts.com wrote:

How on earth was the contractor meant to know that the scaffolder's invoice was wrong? It certainly wasn't wrong when they had a VAT inspection so how can HMRC be so inconsistent.

Because the VAT inspection won't have raised a flag. If subby raises a invoice for £1000 then the VAT added is £200, regardless of how subby has split the invoice between labour and hire. But for income tax if the hire is 70% as opposed to (say) 30% then obviously that could be seen as avoiding CIS which HMRC will frown upon. I agree that in the end it makes no difference but it is classed as CIS avoidance. It would have been better for the subby to have put the actual hire cost for each job.

Did HMRC check subby's accounts and find the split was unjustified?

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