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Opinion - Is CIS registration required?

Property Flip Limited Company - CIS Registration?

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Can I have opinions please - a Limited Company client whose business model is purchasing run down properties and renovating them for resale, in doing so engaging the services of builders/electricians/plumbers etc, not through PAYE but being invoiced for services.  Do they need to register as a CIS contractor?

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By lesley.barnes
13th Sep 2021 15:25

I would say yes, that would be mainstream CIS but as ever you will need to check that the work that is being carried out does fall in the scope of CIS.

www.gov.uk/hmrc-internal-manuals/construction-industry-scheme-reform/cis...

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By doubletrouble
13th Sep 2021 15:56

And another yes from me

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By tracyannw
13th Sep 2021 15:59

Thanks everyone that is my opinion too I am just getting a lot of kick-back from my standpoint at the moment so just wanted to confirm that I am not 'barking up the wrong tree' - so as to speak.

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Replying to tracyannw:
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By David Ex
13th Sep 2021 16:11

tracyannw wrote:

Thanks everyone that is my opinion too I am just getting a lot of kick-back from my standpoint at the moment so just wanted to confirm that I am not 'barking up the wrong tree' - so as to speak.

The guidance is relatively plain English so stick that under their nose.

To be fair, I bet there are a majority of “amateur” developers who have no idea.

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Replying to David Ex:
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By Leywood
13th Sep 2021 17:10

[quote=David Ex] ''The guidance is relatively plain English so stick that under their nose.''

^^^^ This, every time!

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Replying to David Ex:
By tracyannw
13th Sep 2021 17:17

Thanks David the problem is that they are 'interpreting' the guidance in that they would be a deemed contractor and they are under the limits. The are not a deemed contractor as their business model is to purchase cheap and renovate for a profit. The work being done by typical CIS tradesmen (albeit not registered). Cant seem to convince them from their view point so I am not going to act for them. Like you say the problem is that there are so many 'amateur' developers out there doing what they want and getting away with it. Unfortunately there are also a number of accountants that don't care and will just ignore the fact that CIS should be operated.

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Replying to tracyannw:
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By Leywood
13th Sep 2021 17:09

What reason are they giving in that kick-back?

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Replying to Leywood:
By tracyannw
13th Sep 2021 17:35

They are convinced that they would fall under the deemed contractor status as their business model is not construction but the purchase and sale of property to make a profit. They don't seem to understand that the method of them making the profit is construction related, they are not simply purchasing property at a knockdown price and selling it on at a profit. They are purchasing the property at a knockdown price due to the condition, they are then engaging contractors to bring it up to condition, then selling it at a profit. I totally understand why they don't want to fall under CIS as although technically it is not a cost to them, practically it does fall on them as most subbies are not interested in registering under CIS (because they don't want to declare income). So to engage with subbies (that refuse to register for CIS) they end up grossing up the fees so the subbie gets the same payment after the deduction. This is not a one client problem, its an issue I face repeatedly with clients who are property developers. Trying to convince them of the regulation is never easy. I just wanted to get another view point on it to ensure I am not misinterpreting myself - which it appears I am not.

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Replying to tracyannw:
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By doubletrouble
13th Sep 2021 17:56

tracyannw wrote:

They are convinced that they would fall under the deemed contractor status as their business model is not construction but the purchase and sale of property to make a profit. They don't seem to understand that the method of them making the profit is construction related, they are not simply purchasing property at a knockdown price and selling it on at a profit. They are purchasing the property at a knockdown price due to the condition, they are then engaging contractors to bring it up to condition, then selling it at a profit. I totally understand why they don't want to fall under CIS as although technically it is not a cost to them, practically it does fall on them as most subbies are not interested in registering under CIS (because they don't want to declare income). So to engage with subbies (that refuse to register for CIS) they end up grossing up the fees so the subbie gets the same payment after the deduction. This is not a one client problem, its an issue I face repeatedly with clients who are property developers. Trying to convince them of the regulation is never easy. I just wanted to get another view point on it to ensure I am not misinterpreting myself - which it appears I am not.

Have you pointed out that they may have to pay either 20% or 30% of all the money paid to the subbies if it turns out these payments have not been declared

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Replying to doubletrouble:
By tracyannw
13th Sep 2021 18:31

I have but they are convinced that their point of view is correct and if it came to it they could argue that they are not caught within the scope of CIS. Unfortunately its a case of they cant be convinced so rather than waste any more time I am stepping back.

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Ivor Windybottom
By Ivor Windybottom
13th Sep 2021 16:28

Maybe the VAT Domestic Reverse Charge for CIS is causing confusion?

The VAT DRC does not apply to "end users", i.e. those who do not make onward supplies of construction services, so would not apply to your client as they only supply property for sale not construction services.

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Replying to Ivor Windybottom:
By tracyannw
13th Sep 2021 18:32

Thanks but VAT is not even coming into consideration. They have been directed and read the relevant gov.uk guidance but not willing to accept they are caught under CIS.

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Replying to tracyannw:
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By rmillaree
13th Sep 2021 21:14

The solution here is simple - you client needs to ring up the subcontractors helpline and they (cis helpline) should confirm there is no such "general" exemption for firms refurbishing residential property engaging "subcontactors" - if they ring back and say the subcontractors helpline have said anything different advise the conversation must have got lost in translation and that they should come in and you will do the phonecall in their presennce. I have had plenty of these try it on "property refurb types" who will sprout anything that comes out of their mouth and ignore/forget everything you say to them - you have to be a broken record - really only other option is to disengage or make clear you provide zero guidance or comment with regard to anything cis - even then its impossible to ignore obviuous red flags .

The only caveat i would have here is that its not clear that all the work you do mention comes within cis - you want to be slightly wary about picking fights in this regard with electricians and plumbers who are simply performing routine maintenance or minor additions to existing building service systems as outlined in cisr1409

https://www.gov.uk/hmrc-internal-manuals/construction-industry-scheme-re...

"Even where the repaired/replaced item may represent a significant component part of the overall system, such as a central heating boiler, its replacement does not constitute ‘the installation of a system of heating’ and therefore will not fall within CIS."

as with everything cis related the devil truly does lie in the detail here - there are any number of exceptions to what you would normally think would apply - eg the above situation could come within cis if its "mixed contract" including other services.

The one thing that is for sure through is that there is no blanket exemption for "peeps refurbing properties" for a living.

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Replying to rmillaree:
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By David Ex
13th Sep 2021 23:09

rmillaree wrote:

The one thing that is for sure through is that there is no blanket exemption for "peeps refurbing properties" for a living.

They don’t tell you that on Homes Under The Hammer, do they?

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Replying to David Ex:
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By doubletrouble
14th Sep 2021 07:09

David Ex wrote:

rmillaree wrote:

The one thing that is for sure through is that there is no blanket exemption for "peeps refurbing properties" for a living.

They don’t tell you that on Homes Under The Hammer, do they?

Unless they are Property Investment businesses in which case CIS may well not apply, but that is certainly not the case described here.

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Replying to doubletrouble:
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By rmillaree
14th Sep 2021 08:22

"Unless they are Property Investment businesses in which case CIS may well not apply, but that is certainly not the case described here."

Good point David.

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Replying to rmillaree:
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By doubletrouble
14th Sep 2021 08:30

Good point David.

[/quote]

I have always liked the name David!

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Replying to rmillaree:
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By Leywood
14th Sep 2021 09:11

This >> '' you client needs to ring up the subcontractors helpline ''. I wouldnt normally get anyone to phone HMRC but this is one case where it would help, but only if you are sitting next to them.

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All Paul Accountants in Leeds
By paulinleeds
15th Sep 2021 14:25

They need to register as a CIS contractor.

See s74(2) FA2004 and subjections (a) and (b) 'repair, extension, demolition or dismantling of buildings or structures (whether permanent or not)' and 'construction, alteration, repair, extension or demolition of any works forming, or to form, part of the land'

The place to start is the legislation in relation to what is within the meaning of construction operations. The legislation is found at s74(2) FA2004 (https://www.legislation.gov.uk/ukpga/2004/12/section/74/2004-12-02) and there are six subsections: (a) to (f).

Section (2) say the following operations are, subject to subsection (3), construction operations for the purposes of this Chapter—
a) construction, alteration, repair, extension, demolition or dismantling of buildings or structures (whether permanent or not), including offshore installations;
b) construction, alteration, repair, extension or demolition of any works forming, or to form, part of the land, including (in particular) walls, roadworks, power-lines, electronic communications apparatus, aircraft runways, docks and harbours, railways, inland waterways, pipe-lines, reservoirs, water-mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence;
c) installation in any building or structure of systems of heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection;
d) internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration;
e) painting or decorating the internal or external surfaces of any building or structure;
f) operations which form an integral part of, or are preparatory to, or are for rendering complete, such operations as are previously described in this subsection, including site clearance, earth-moving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works.

Section (3)provides a list of exceptions.

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