The Construction Industry

Do you work in the construction industry?

The construction industry covers an array of business such as site preparation, alterations, dismantling, construction, repairs, decoration, demolition, etc. There are a number of different rules which apply to this industry which you may not know and by not complying to HMRC can lead to fines and penalties. Please check HMRC’s website to see work covered by CIS and what exemptions are available.

Construction Industry Scheme (CIS)

Under CIS contractors deduct money from a subcontractor’s pay and pass it to HMRC. A contractor must  complete a monthly CIS certificates (even when it is a nil return). Failure to submit the certificate by the monthly deadline can result in a £100 fine.

Contractor

A contractor is a business or other concern that pays subcontractors for construction work.

Contractors may be construction companies and building firms, but may also be government departments, local authorities and many other businesses that are normally known in the industry as ‘clients’.

Some businesses or other concerns are counted as contractors if their average annual expenditure on construction operations over a period of 3 years is £1 million or more.

Private householders aren’t counted as contractors so aren’t covered by the scheme.

Registering for the scheme - Contractors

When to register

When you’re about to take on and pay your first subcontractor, regardless of whether that subcontractor is likely to be paid gross or under deduction.

Subcontractor

A subcontractor is a business that carries out construction work for a contractor.

Subcontractors can apply to be paid gross – with no tax deductions taken from their payments. To do this, subcontractors will need to show us that they meet certain qualifying conditions.

A subcontractor must complete a tax return including the CIS which has been deducted from them that tax year to reclaim it.

Registering for the scheme – Subcontractors.

When to register.

Register when you are, or your firm or company is, about to start work within the construction industry.

Register as a sole trader.

If you’re a sole trader and you already have a UTR you can register for CIS online by logging in with your Government Gateway ID.  You should also set up your HMRC Digital Tax account.

You can apply for gross payment status at the same time.

If you don’t have a UTR, register as a new business for Self Assessment and choose ‘working as a subcontractor’ when prompted. You’ll be registered for Self Assessment and CIS at the same time.

Businesses that are contractors and subcontractors.

Many businesses pay other businesses for construction work, but are themselves paid by other businesses too. When they’re working as a contractor, they must follow the rules for contractors and when they’re working as a subcontractor, they must follow the rules for subcontractors.

Making deductions from payments.

Under the scheme, all payments made from contractors to subcontractors, must take account of the subcontractor’s tax status. This may require the contractor to make a deduction, which they then pay to HMRC from that part of the payment that does not represent the cost of materials incurred by the subcontractor.

If no deduction is required, the contractor can make the payment to the subcontractor in full.

If a deduction is required, the contractor must:

  • calculate the deduction,
  • make the deduction,
  • record details of the payment, materials and deduction,
  • make the net payment to the subcontractor and,
  • complete and give the appropriate statement of deduction to the subcontractor.

Please contact us for more information or check HMRC’s website.

VAT.

Construction of a new building and work to an existing building is normally standard-rated.

There are, however, various exceptions to this.

Construction Service

Rate of VAT

Further Information

Construction of new qualifying dwellings and communal residential buildings, and certain new buildings used by charities.

0%

Section 3

Conversion for a housing association of a non-residential building into a qualifying dwelling or communal residential building.

0%

Section 6

Conversion (other than for housing associations) of a non-residential building into a qualifying dwelling or communal residential building and conversions of residential buildings to a different residential use.

5%

Section 7

Renovation or alteration of empty residential premises.

5%

Section 8

Approved alterations to listed dwellings and communal residential buildings, and certain listed buildings used by charities (rate shown with effect from 1 October 2012)

20%

Section 9

Alterations to suit the condition of people with disabilities.

0%

Notice 701/7 VAT reliefs for disabled people

Installation of energy saving materials; and grant funded heating system measures and qualifying security goods.

5%

Notice 708/6 Energy-saving materials

Development of residential caravan parks.

0%

Section 20

First time gas and electricity connections

0%

Notice 701/19 Fuel and power

Installation of mobility aids for the elderly for use in domestic accommodation

5%

Reduced-rate VAT on mobility aids for older people

Home improvements on domestic property situated in the Isle of Man

5%

Isle of Man VAT Notice Home improvements available from: 

Isle of Man Customs and Excise Advice Centre
Custom House
North Quay
Douglas
Isle of Man
IM99 1AG 

Subcontractors.

Subcontractors are contractors who work to other contractors. For the most part they can zero-rate or reduce-rate their supplies according to the building being constructed or worked on. There are exceptions.

Building materials.

Retailers and builders’ merchants charge VAT at the standard rate on most items they sell.

Builders, however, charge VAT on ‘building materials’ that they supply and incorporate in a building (or its site) at the same rate as for their work. Therefore, if their work is zero-rated or reduced-rated, then so are the ‘building materials’. However, some items are not ‘building materials’ and remain standard-rated.

Please ensure you have a copy of the planning consent in case there is a VAT inspection.

Published 31 January 2018 by Rebecca Devine.

Updated 6 March 2018.