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Does system installation fall under CIS?

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Whether the installation of equipment or ‘a system’ falls under the construction industry scheme (CIS) is the source of some confusion. Anil Patel answers readers’ questions on this point.

25th Aug 2021
CIS specialist EmphaCIS Tax Consultancy Ltd
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Unfortunately, the CIS legislation is so widely drawn that interpretation of what is caught by CIS and what isn’t can differ.

There are some works which clearly fall within CIS but there are also various other types of works where the position is not as clear as one would like, or instances where the works would be outside of CIS but then can be dragged into CIS because of something else.

It is important to note, that the question of what is within scope and what is outside scope has not fundamentally changed since CIS first came into being during the early 1970s.

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 and there are six subsections: (a) to (f). For the purposes of this article, I will focus on subsection (c) which states:

“...installation in any building or structure of systems of heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection.”

It is clear from the wording that it is only the “installation” of these types of “systems” that are caught for the purposes of CIS and as such, the repair, alteration or extension of these systems, in the first instance, will be outside the scope of CIS (but see comments below).

What is a system?

When it comes to CIS, a system can be different things.

First consider whether the item that is being installed is a system in itself or a part of a wider system. For example, an uninterruptible power supply (UPS) unit will be regarded a system in itself and the installation of the same will be within CIS as it will be within the meaning of “installation… of systems of… power supply” given that its purpose is to provide backup power.

The installation (or replacement) of a central heating boiler would not be within CIS (but see below in relation to repairs etc and remedial works). This is because the UPS is standalone, whereas the boiler is a part of a wider system of heating.

As such, any type of plant that provides, or can provide power, will be within the scope of the CIS. This will include the supply of gas (mains or liquified) and/or electricity be that mains or battery (eg a UPS), irrespective of what the power might be used for.

Repairs, alteration or extension

Whilst legislation only captures the installation of these systems and not the repair, alteration or extension of the same, undertaking repairs etc can, nevertheless, be dragged into CIS.

Repairs or alteration

Where the repair or alternation of the system involves other remedial works or making good of the structure in which the system sits, the remedial works or making good will be within CIS as this will be caught under subsection s74(a) FA2004 which captures repairs to structures. As a consequence, if the repairs are undertaken and remedial works or making good is also undertaken under the same contract, then the repairs will be dragged into CIS.

As a consequence, whilst a central heating boiler is not regarded a system in itself but rather a part of a wider system of heating and therefore outside the scope of CIS, the installation can, nevertheless, be dragged into CIS where other remedial works are required to the structure to enable the installation.

Extension

As with the repairs or alteration of a system, where remedial works or any making good of the structure is required where a system is being extended (eg the addition of an extra plug socket), then that extension work will be caught for CIS purposes.

Equally, where the ring main is being extended to a newly built extension, then where that work is being done under the same contract the extension of the ring main will be caught for CIS, given that the building works relating to the newly built extension will be within CIS.

Conclusion

Deciding whether or not any particular types of specific works are caught for CIS purposes is not straight forward. What needs to be considered, in the first instance, is whether the plant or equipment being installed is a system in itself or a part of a wider system and what other ancillary works are being undertaken with regard to its installation, repair, alteration or extension.

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Replies (8)

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By CWservices6064
25th Aug 2021 16:14

Very helpful article.

So, if a builder gets a call from a previous client about a leaking pipe and subcontracts this to a plumber, this would be outside of CIS unless the pipework is, for example, behind plaster and this access damage is subsequently made good?

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Replying to CWservices6064:
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By johnjenkins
26th Aug 2021 10:50

Subcontractors come within the CIS.

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By CWservices6064
27th Aug 2021 13:00

Only if the work done is within the Construction Industry Scheme.

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By johnjenkins
27th Aug 2021 13:23

When CIS was set up you had "contractors" and "subcontractors" (Including counting business that are both contractors and subcontractors). The idea was that all subbies within the construction industry would either have 30%, 20% deducted , or be exempt. IMV this has not changed. When you are registered as a subcontractor within the construction industry you will either have deductions or are exempt. Obviously if you are doing work not in the construction industry then you get paid gross.

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Replying to CWservices6064:
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By Anil Patel
01st Sep 2021 10:33

This will depend on at what point the builder was called back to carry out the repair. If it was almost immediately after the work was originally undertaken, then HMRc could argue that the repair is caught on the basis that the repair "renders complete" the works.

If, however, the repair is undertaken quite some time later then, the repair would not be caught for CIS unless other remedial works are required (eg repair of the wall) to facilitate the repair.

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By adam.arca
30th Aug 2021 08:25

I’m not sure the example given was particularly illuminating. For me, a UPS serves no purpose by itself and isn’t therefore a system in itself (assuming the author means a UPS as a plug in backup supply).

More fundamentally, though, this article illustrates why most sensible builders find it easier to “CIS” everything rather than wade through sh.1.t like this. Those same sensible builders are also currently “DRC”ing everything for exactly the same reason.

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Replying to adam.arca:
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By Anil Patel
01st Sep 2021 10:38

And this is the issue with the CIS. How we might interpret something is not necessarily the way HMRC will interpret it.

HMRC will, in my view, regard a UPS as a "system" because, ultimately, its purpose is to provide backup power in the event of a mains power outage. As such it is a system of power supply.

I agree that most contractors will take the view to treat everything they do as within CIS as this is the safest option. There are no penalties for over operating CIS!

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By CWservices6064
05th Sep 2021 13:44

Whilst there are no penalties for over operating CIS there is now the VAT Reverse Charge to consider so HMRC have at least two chances to challenge treatment.

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