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Construction Industry Scheme (CIS): when is it material?

As a contractor within CIS are you sure that you are treating materials claimed by subcontractors correctly?

A contractor has sole responsibility to verify that the amount a subcontractor is claiming as material costs are genuine and reasonable, before they can exclude the amount from the total on which CIS deductions are made. If a contractor does not obtain satisfactory information or is not able to verify the costs are not overstated, excluding the amount from the calculation of the CIS tax due could lead to the contractor being on the hook for any under-deduction of CIS.

In our recent experience, allowable material deductions is an area HMRC are increasingly focusing on as part of their CIS compliance reviews.

Plant hire

Where a subcontractor has to hire plant to carry out the work, the cost of the plant hire and any consumable items such as fuel needed for its operation, may be treated as materials for the purposes of calculating any CIS deduction.

It is important to note that this treatment only extends to plant and equipment actually hired by the subcontractor from a third party. Where materials are claimed in relation to plant hire, the contractor should in every instance be checking with the subcontractor whether or not they have hired the plant from a third party or whether they own the plant being provided.

Whether plant is actually owned by the subcontractor for CIS purposes is not easily determined and we would suggest specialist advice is sought to confirm whether the plant is considered to be owned or hired for CIS purposes.

Profit on materials

If the subcontractor has uplifted the cost, for example they may be looking to make a profit on the amount they are charging, the profit element does not qualify as materials and will still be liable to CIS deductions.

Ultimately HMRC expect contractors to have systems in place to check the materials costs being paid. If HMRC were to carry out a compliance check and consider that the material supplied have been overstated they will look to the contractor for the addition CIS tax that is considered to have been under deducted.

Costs of non-compliance

The contractor will be liable for any resulting under-deduction of CIS and there is also the potential for additional interest and penalties.

Compliance failures identified during HMRC compliance review can result in the removal of a subcontractor’s gross payment status which can have serious financial repercussions for a business. It is therefore imperative that contractors have suitable processes and checks in place to be satisfied that the materials costs are reasonable and genuine.

How can we help?

Should you require any queries or would like to enquire about a health check regarding the operation of the Construction Industry Scheme then please contact Steve Ashworth or Scott Campbell in our Employer Solutions team who will be able to support you.

FEATURING: Steve Ashworth
Before joining the Bristol office of PKF Francis Clark in July 2019, Steve started his career at HMRC over 30 years ago and then spent… read more
FEATURING: Scott Campbell
Scott provides advice on all aspects of employment and construction industry scheme taxes, as well as national minimum wage. He particularly enjoys navigating clients through… read more
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