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CIS & Disbursements

Can we make payments to CIS contractors as disbursements

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Hi,

We are registered with the CIS scheme as a contractor.

Our business model has now changed to offering. a constructiuon project management service where our involvement from a labour standpoint is solely that of project managers, and we have contracts with our clients that allow us to treat material purchases as disbursements.

What we are interested to know is if we instruct a sub-contractor on our clients behalf (there would be a contract between the sub contractor and the client) and that they pay these subcontractors directly (abilt using funds held in the clients disbursement account) are these payments outside the scope of CIS or not?

Thanks

Dean

Replies (14)

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By doubletrouble
13th May 2021 22:10

So are your clients operating CIS and making the tax deductions from the sub-contractors?

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By doubletrouble
13th May 2021 22:20

Or are you suggesting that the sub-contractors now become contractors?

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By leedsbuilder
13th May 2021 22:35

doubletrouble wrote:

Or are you suggesting that the sub-contractors now become contractors?

Well we are the project managers for the project, we are the clients agents as such and using our network of contractors we appoint someone to do the job (they then have a contract between then and our client).

What I need to know is as the contract is between the client and the contractor we appointed, and that we would be paying them (using client funds), is this outside of CIS?

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By leedsbuilder
13th May 2021 22:35

doubletrouble wrote:

So are your clients operating CIS and making the tax deductions from the sub-contractors?

Nope our clients are home owners and not registered for CIS.

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Replying to leedsbuilder:
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By doubletrouble
13th May 2021 23:06

I see why you are asking as this is similar to what firms like Rated People and Mybuilder do who do not need to operate CIS and are only making introductions between builder and client, but they do not receive the clients money this is paid to the builder by the client.
I suppose it comes down to what the contact says between the clients and builders and also between you and the client.
My opinion would be that you are still the contractor because you are holding the money and you decide who does the work and then you pay the builders as you are project managing, but as said just my opinion.

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By pauld
14th May 2021 09:30

Are you raising an invoice to the client for the monies that you hold for them? What does this invoice say? e.g. fee for project management including all labour or are you just giving client receipt for money that you hold for them?
How are you being paid by the client? out of these funds or separately.

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Replying to pauld:
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By leedsbuilder
14th May 2021 10:22

pauld wrote:
Are you raising an invoice to the client for the monies that you hold for them? What does this invoice say?

Invoice is raised to client for the disbursement funds, the invoice simple stats that it’s for advanced payment towards disbursements incurred on their project.

We are paid separately and not from these funds.

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By lesley.barnes
14th May 2021 10:35

I think that you need to speak to your accountant about this arrangement. I think that there may be more traps than CIS. Your accountant may need to refer this to a tax specialist to review the contract and billing arrangements between you and your client and your client and the people carrying out the work. You mention that you have a contract with your client to treat material purchases as disbursements but labour isn't "materials"
There could be wider implications such as VAT and managing the client bank account itself. Do you have separate accounts for each client? The idea that you are appointing and paying the subcontractors from a client fund could potentially be problem. If the builders have contracts with the homeowners why are they not paying them directly rather than depositing the money in an account for you to control.
Is this a complicated way of avoiding reaching VAT threshold and CIS?

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By doubletrouble
14th May 2021 10:48

Does the client get to choose the builders they use or are they the ones that you choose?

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Maytuna
By DJKL
14th May 2021 13:41

It seems little different from using escrow accounts to reassure contractors appointed they will get paid, if your role is merely settling bills incurred by your clients with third parties I struggle to see that you are within any CIS chain.

Whether your clients need to make deductions from these payments you make on their behalf will depend on their status.

It seems little different from a letting agent instructing repairs on let properties they manage owned by others.

Everything will imho follow the contractual relationships in place re the works instruction, get them reviewed and you should be fine.

(When a solicitor holds a sum aside on behalf of a client on a property sale to meet remedial costs, and pays for these for his client in terms of such a retention, is he/she considered to be in the CIS chain?)

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By doubletrouble
14th May 2021 16:23

But they are not letting agents or solicitors they are by their own admission building contractors who are now changing the name into project management, so they will be part of the building works and getting paid to do so, the only thing that seems to be different in this scenario to a normal building contractor is that they will be getting the money paid into a separate account before paying the builders, still hard to see in my opinion how this does not fall under CIS, but as we all say the contract is the key.

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By leedsbuilder
14th May 2021 18:10

doubletrouble wrote:

But they are not letting agents or solicitors they are by their own admission building contractors who are now changing the name into project management, so they will be part of the building works and getting paid to do so, the only thing that seems to be different in this scenario to a normal building contractor is that they will be getting the money paid into a separate account before paying the builders, still hard to see in my opinion how this does not fall under CIS, but as we all say the contract is the key.

Builders is a strong term as this business is not building anything itself, it is sub contracting that to client appointed contractors, we recommend the contractors but clients can appoint there own, we manage the project in a role of construction project manager and manage the budget and payments of these contractors on behalf of our clients.

Essentially it's same as a letting agency/solicitors paying for searches/remedial works on behalf of clients.

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Replying to leedsbuilder:
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By doubletrouble
14th May 2021 18:55

"Builders is a strong term as this business is not building anything itself, it is sub contracting that to client appointed contractors"

As you say you are sub-contracting the work out, if the way you are suggesting is indeed okay all contractors in the future can just avoid operating CIS by saying that they are not contractors but are just project managing.

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Maytuna
By DJKL
15th May 2021 00:09

The key is are they contractually in the chain re the building services or are they merely managing the project and payments re the project, to me it sounds like the latter, but maybe the OP can confirm?

My colleague at work (We together run a property group but he also manages property projects for other local property entities) was involved with a large development (student housing , I suspect £5-£10m build) where the end client (owner) employed a professional project manager to manage the contracts with the builders etc, authorise release of monies, similar, that did not make that individual a sub contractor or a contractor.

I currently have a common roof repair where we offered to place our share of the budgeted costs with the surveyors managing it at the outset, to reassure the builders that funds were in place before they started, said funds to be released on authorised works stage payments by said surveyor. At the end of the day it was not necessary, the contractor was happy we and the one other commercial owner re the block were good for the money (£200k contract, our share £48,000), but again the surveyor, notwithstanding they would have made the payment, would not have been involved providing construction activities to us.

I have been involved with a building contract where funds were at front end placed in an escrow account and released in stages, transferred by solicitors holding control over said accounts, releasing this client money is certainly not a construction activity, if it is then Denton's, the UK's largest firm of solicitors, is a contractor vis a vis such a transaction, it of course is not. (Cannot now remember precisely who this contract was with***, nor what was being provided on site, but I do recall they were a large scale builder, it was for a site re 35 houses re some groundworks, its total cost was only £23,000 (why it sticks, having to use Escrow for such a paltry sum) and we, as a contractor (one of our LLPs) , verified the builder, we did not verify the solicitors)

*** Edit, remembered, it was part of Balfour Beatty, Raynesway I think.

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