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CIS work or not?

CIS work or not?

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A new carpenter sole trader came my way in January 20.

His initial plan was to work on his own for private householders only completing small jobs as he is semi retired. All roles prior to this have been employed (mainly MOD as ships carpenter) so this is new to him. We went through the CIS scheme so he has been made aware of it.

His records show that he has undertaken some larger jobs involving domestic kitchen refits and he has used self employed electricians and plumbers for relevant work (new sockets, replace consumer units, install taps etc).

My reading of www.gov.uk/hmrc-internal-manuals/construction-industry-scheme-reform/cis... is that this work is outside of CIS so my client was not required to register as a contractor. Correct?

If my client was to use a subcontract kitchen fitter this would fall with CIS - correct?

My advice has been consider all use of labour carefully and to ask any other trades used to contract direct with the householder to avoid CIS risks. Importantly, I have  reminded him to request advice at the time and not after the event!

 

 

 

 

Replies (27)

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RLI
By lionofludesch
30th Dec 2020 15:35

If my reading of your query is correct, your client is a contractor but not a subcontractor. If he has paid any of the subcontractors he has engaged as a contractor, then he should have deducted tax.

Thanks (1)
Replying to lionofludesch:
By williams lester accountants
30th Dec 2020 17:19

lionofludesch wrote:

If my reading of your query is correct, your client is a contractor but not a subcontractor. If he has paid any of the subcontractors he has engaged as a contractor, then he should have deducted tax.

Agreed, also do you need to file SAR? As there may be a loss of tax if the subbies do not declare this income.

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Replying to williams lester accountants:
RLI
By lionofludesch
30th Dec 2020 17:24

williams lester accountants wrote:

Agreed, also do you need to file SAR? As there may be a loss of tax if the subbies do not declare this income.

Absolutely not.

What evidence can you have that the subbie will not include this in his income?

It falls into the category of "making stuff up".

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Replying to lionofludesch:
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By CWservices6064
30th Dec 2020 17:19

Thanks for the reply.

But, in this case where an electrician is used on a subcontract basis to move a few light sockets, I read it as this is not 'construction work' i.e. covered by extending existing systems www.gov.uk/hmrc-internal-manuals/construction-industry-scheme-reform/cis...

Extending Existing Systems
As mentioned above only the installation of building systems is within CIS. As with repairs, extensions to systems will similarly be excluded, this could be for example, the addition of an extra radiator to a central heating system, or the wiring of additional electrical plug sockets.

Where a building has been extended by the addition of further floors above or rooms to the side, the extension work will be a construction operation caught by the scheme under FA04/S74 (2)(a). Any system extensions carried out as part of the same contract to extend a building or structure will also be caught as part of a mixed contract.

Have I misunderstood this (very possible!)?

Thanks (1)
Replying to CWservices6064:
RLI
By lionofludesch
30th Dec 2020 17:32

CWservices6064 wrote:

Thanks for the reply.

But, in this case where an electrician is used on a subcontract basis to move a few light sockets, I read it as this is not 'construction work' i.e. covered by extending existing systems www.gov.uk/hmrc-internal-manuals/construction-industry-scheme-reform/cis...

Extending Existing Systems
As mentioned above only the installation of building systems is within CIS. As with repairs, extensions to systems will similarly be excluded, this could be for example, the addition of an extra radiator to a central heating system, or the wiring of additional electrical plug sockets.

Where a building has been extended by the addition of further floors above or rooms to the side, the extension work will be a construction operation caught by the scheme under FA04/S74 (2)(a). Any system extensions carried out as part of the same contract to extend a building or structure will also be caught as part of a mixed contract.

Have I misunderstood this (very possible!)?

What you say sounds plausible, yet all the kitchen fitters I know, subcontracting to Wickes, Magnet et al, get tax deducted at source.

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Replying to CWservices6064:
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By Paul Crowley
30th Dec 2020 17:40

Depends whether you want to win a protracted argument with HMRC or just not have the argument in the first place

Agree Lion
The biggies all use CIS, New kitchens and cupboards type people
WHY DO THEY DO IT?

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Replying to Paul Crowley:
RLI
By lionofludesch
30th Dec 2020 17:52

Paul Crowley wrote:

The biggies all use CIS, New kitchens and cupboards type people
WHY DO THEY DO IT?

Could be a bit like IR35 - too scared not to.

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Replying to lionofludesch:
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By Paul Crowley
30th Dec 2020 18:02

Cost is just admin. Subbie gets a payment on account.
No issues and no need to look at grey wording that HMRC read one way and other differently
Admin is trivial if trader is organised

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By doubletrouble
30th Dec 2020 15:46

Agree with Lion, client should be operating CIS

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By CJaneH
30th Dec 2020 16:27

I agree with CWservice6064. Get other trades to invoice directly.

Also to keep turnover below £85K get materials invoiced to householder.

I my area one of the builders merchants runs a system where the householder opens an account and authorises his builder to purchase on that account.

For an tradesman going self employed at the end of his working life getting involved with CIS and VAT is a step to far for most.

Thanks (2)
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By Paul Crowley
30th Dec 2020 16:32

Edit as Jane beat my reply

Agree both (but not JANE)
Your client is a contractor
Register soonest
Chances are all subbies are already registered as subbies

Thanks (1)
RLI
By lionofludesch
30th Dec 2020 17:06

Depends how much is involved but I'd probably gloss over the past and look to getting the future right.

Obviously, if HMRC come along and ask for the tax he ought to have deducted, he doesn't have a leg to stand on.

Thanks (1)
Replying to lionofludesch:
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By Paul Crowley
30th Dec 2020 18:04

Concur
Move forward the right way, not looking to avoid the CIS system
If my kitchen fitter asked me to go and buy the kitchen, he then collects, I would see that as good
But if he wanted my to pay three other tradesmen, then knock off the agreed fee I would look askance and think unprofessional, and is he looking to avoid resolving problems that the others create.
I would also be asking if he carried defective insurance cover on the trades he cannot do

Edit
Who do I complain to when the plugs fail and the gas blows up?
All three pointing at the others

Thanks (0)
Replying to Paul Crowley:
RLI
By lionofludesch
30th Dec 2020 17:44

Paul Crowley wrote:

Concur
Move forward the right way, not looking to avoid the CIS system
If my kitchen fitter asked me to go and buy the kitchen, he then collects, I would see that as good
But if he wanted my to pay three other tradesmen, then knock off the agreed fee I would look askance and think unprofessional, and is he looking to avoid resolving problems that the others create.
I would also be asking if he carried defective insurance cover on the trades he cannot do

Agree, Paul. You could end up creating problems rather than solving them.

Worth pointing out that, whilst VAT might affect your profitability, CIS does not. There are just a few forms to fill in.

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By CWservices6064
30th Dec 2020 18:23

I fully intend to get him registered going forward and was just looking at whether or not he should have already been as the penalties are harsh.

I called the CIS helpline with the specifics (no mention of client!) and they suggested that the work done by the subcontractor was not within CIS and that it would be wrong to withold tax on this basis. She referred to CIS340 as 'the Bible'.....festive.

HMRC online chat was less helpful and would not give any opinion other than 'read CIS340' and write in with any other queries..............reply time..........unknown......

HMRC chat:

'......where about? this page is too long for us to read through, we do not deal with scope enquiries'

I seems that we all (including me) take the 'deduct CIS tax' blanket approach on the basis of least risk.

Thanks again for responding, much appreciated.

Hope you all had a Merry Christmas and wish you a Happy New Year!

Thanks (0)
Replying to CWservices6064:
RLI
By lionofludesch
30th Dec 2020 18:43

CWservices6064 wrote:

I called the CIS helpline with the specifics (no mention of client!) and they suggested that the work done by the subcontractor was not within CIS and that it would be wrong to withold tax on this basis. She referred to CIS340 as 'the Bible'.....festive.

The Bible's not all about Christmas.

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Replying to lionofludesch:
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By Paul Crowley
30th Dec 2020 18:55

It does not even say:

Jesus born in a stable

How many Magi ( just three gifts )
That could be for all seven of them

Thanks (1)
Replying to Paul Crowley:
RLI
By lionofludesch
30th Dec 2020 19:03

Paul Crowley wrote:

It does not even say:

Jesus born in a stable

How many Magi ( just three gifts )
That could be for all seven of them

Massacre of the Innocents - not mentioned in any secular records.

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Replying to lionofludesch:
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By Paul Crowley
30th Dec 2020 19:08

Even worse
No reason to go to Bethlehem as no census.

No mention of Mary on a donkey, but it is a possibility

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By doubletrouble
30th Dec 2020 18:42

Never rely on what HMRC say, although I must admit the CIS helpline is usually pretty good, I think you need to look at it that the work is all part of the kitchen installation so would mean all of the works would fall within CIS (Appendix C1), if the works were unrelated to the kitchen installation then I believe you may have a case.

But as you say you can do more than put it right moving forwards.

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Replying to doubletrouble:
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By CWservices6064
30th Dec 2020 19:26

I'm not sure that's correct. Supply chain is the subcontractor to my client and my client to the householder.

For CIS I need to look at the supply from the subcontractor to my client only......or is this where i'm going wrong?

Thanks (0)
Replying to doubletrouble:
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By CWservices6064
30th Dec 2020 19:26

I'm not sure that's correct. Supply chain is the subcontractor to my client and my client to the householder.

For CIS I need to look at the supply from the subcontractor to my client only......or is this where i'm going wrong?

Thanks (0)
Replying to doubletrouble:
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By CWservices6064
30th Dec 2020 19:26

I'm not sure that's correct. Supply chain is the subcontractor to my client and my client to the householder.

For CIS I need to look at the supply from the subcontractor to my client only......or is this where i'm going wrong?

Thanks (0)
Replying to CWservices6064:
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By doubletrouble
30th Dec 2020 20:07

You need to decide whether it is part of the kitchen installation work, if an electrician fits a new socket for a dishwasher then it is part of the kitchen installation, if a plumber moves pipework to the other side of the kitchen it is part of the kitchen installation, as you said in the OP all the works are associated with the fit so I believe all will fall within CIS.

Thanks (1)
Replying to doubletrouble:
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By CWservices6064
30th Dec 2020 21:11

This could be where i'm going wrong.

I can see that, if my client was was contracting to a builder rather than a private individual (so a subcontractor) his full invoice for kitchen re-fit would be subject to CIS including his charge for electrical work etc.

The subcontract electrician's contract is with my client and is only to add additional sockets or reconnect appliances etc. I see this work as not a new electrical system so outside of CIS.

If we assume that the work done by the electrician in this supply chain is outside of CIS are you saying he should be subject to CIS anyway because the end user is ultimately receiving a service falling in CIS?

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Replying to CWservices6064:
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By doubletrouble
31st Dec 2020 06:37

Your client has a contract with the homeowner to install a kitchen and I assume all associated work as in electrics and plumbing, this therefore makes him a contractor, your client can not complete these works himself and therefore needs to engage the services of sub-contractors to complete the kitchen installation so these works are all part of the same contract.
If the electrician was moving a socket in an upstairs bedroom then I believe you may be able to argue that it is not within CIS.
My advice would be to make sure your client has invoices for any work that the subbies carried out and move on, as said up thread all HMRC are interested in is making sure all the correct tax has been paid.

Thanks (1)
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By john hextall
04th Jan 2021 12:01

I would agree with your advice. If your client starts working as a project manager, there are other complex issues to deal with, not least of which are CDM regulations, building control and increased liability. It's one thing asking a mate to move a couple of sockets or change some taps and bill the customer directly, it's a whole other world subcontracting people to replace distribution boards or heating systems. Of course, if that is what your client wants to do, he needs to change his mindset from being semi-retired.

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