Small construction contractors - CIS

[torqueofthedevil]

A mate has a small building company but has opportunity to grow and do a bit for a main contractor.

Been helping him as much as I can and been reading up on CIS.

He will have to subcontract some of the works. Will the main contractor deduct 20 or 30 percent if he is / isn’t a member of the CIS or will he be expected to deduct that from payments to his subcontractors?

Obviously would just need to be aware of this when pricing etc. would get proper advice from an accountant but just trying to understand the basis of it

Thanks

[Terminator X]

CIS is just main contractors collecting tax that was hard for HMRC to collect down at sub-contract level. Afaik MC's will always deduct it when making payments downwards.

TX.

Edit - just a cashflow issue in theory as the CIS payments were always due?

[tleefox]

If he can achieve “gross” status then there will be no deductions by the MC for CIS.

If he is registered for CIS then deduction is 20%. If he is not, or cannot demonstrate to the MC that he is, the MC is legally obligated to deduct 30%.

Note that the deductions apply to labour elements only, not materials.

EDIT - just make him aware that working for a MC is not all it is cracked up to be. Growth isn’t necessarily a good thing in the construction industry, especially if he’s dependent on what mood the MC is in as to whether he gets paid anything or not.

Edited by tleefox on Wednesday 26th April 21:48

[torqueofthedevil]

Thanks for replies. I suppose the difficult thing is that for small builders that I know they all help each other out and pay each other quite informally. If he were to use the same people in a formal arrangement of “subcontracting” then all of a sudden they are all going to be paid 20% less.

[AMST09]

They aren’t being paid 20% less, they are just being deducted some of the tax that will be owed at the year end. It’s only on the labour element. They will have it stopped and he will need to stop it on anyone working for him, although some items like fire alarms fall outside the scope of CIS.

To the comment about MCs, all our work is for MCs and it works great for us, no hassle dealing with the end client and no worry about having to find clients as they effectively do it for us.

[Gorgonzola]

CIS is taken on the labour part of the contract only and to that they need to split their Application for payment, or invoice as a labour or material split. If they don’t do this the MC will take it off the entire invoice to save themselves money for their own cash flow.

They will only be able to get ‘gross’ status if they hit a certain turnover or they have been trading a certain amount of years.

With the split between labour / materials your mate needs to be very careful and make it as near as possible. Like VAT, HRMC do investigate this and you can be liable plus fines if it’s not correct.

[Gorgonzola]

CIS is taken on the labour part of the contract only and to that they need to split their Application for payment, or invoice as a labour or material split. If they don’t do this the MC will take it off the entire invoice to save themselves money for their own cash flow.

They will only be able to get ‘gross’ status if they hit a certain turnover or they have been trading a certain amount of years.

With the split between labour / materials your mate needs to be very careful and make it as near as possible. Like VAT, HRMC do investigate this and you can be liable plus fines if it’s not correct.