If you carry out any sort of building works on a property and engage labour you have to be wary of the rules under the construction industry scheme where tax has to be potentially stopped on the labour element of the service provided.
This is a major pitfall in the construction industry which we have previously covered in two blogs:
Warning! Doing works on a property? You might need to operate a Construction Industry (CIS) scheme.
Construction Industry Pitfall Number 4: All About The Tax
But what about professionals such as architects and surveyors – they’re exempt aren’t they? As with a lot of areas in tax, the answer to this question is – “Usually, but not always! ”
The Construction Industry Scheme (CIS) is generally regarded as being only applicable to the likes of builders and developers, no doubt because the name alludes to it. However in practice it is much wider in scope that you may think and can, in certain circumstances, encompass the work of ‘professionals’ like surveyors, architects and consultants.
As a recap, any person or company engaging a subcontractor within a contract that relates to ‘construction operations’ must operate as a contractor under the CIS Scheme and deduct tax from their subcontractors to pay over to HMRC. The basic deduction is 20% tax; however it could be 30% if the subcontractor has not registered as a CIS subcontractor, or 0% if the subcontractor is registered for gross payment status.
‘Construction operations’ is vague and a more in-depth list of what is included and what isn’t can be found in the HMRC Manual CISR14000, however we will focus on when ‘construction operations’ do indeed involve the work of a ‘professional’.
The CIS legislation excludes the following from CIS: “the professional work of architects or surveyors, or of consultants in building, engineering, interior or exterior decoration or the laying-out of landscape” – you may be paying an architect and think, ‘great – this doesn’t apply to me’, but care has to be taken as there are, helpfully, exclusions to this exclusion!
Firstly, for CIS not to apply to the works of, say, architects or surveyors, they have to be operating in their normal professional discipline. This is to say that when an architect or surveyor goes beyond their usual duties and perhaps takes a more project management role in the construction project, then the exclusion no longer applies to them and CIS must be deducted on all payments to them.
Secondly, the work that the ‘professional’ is carrying out must be purely consultative and not executive in nature. Simply put, they must only advise or assess. When their work starts becoming more involved in that they have an active management role in the construction process, they fall under the charge of CIS.
Let’s look at some examples…
ABC Construction Ltd engages a professional consultant, Mr Smith, to advise on the building regulations on an ongoing development project.
Mr. Smith comes along and inspects the work, draws up a report on his findings, gives this to ABC Construction Ltd and his work is done – he is acting in a purely consultative position, and so he is excluded from CIS.
But what if Mr Smith was to draw up his report and find significant issues that need addressing? In this example ABC Construction Ltd asks him to manage the rectification of these issues and Mr Smith proceeds to engage and instruct others to complete the works on behalf of ABC Construction Ltd. In this case, Mr Smith is acting in an executive position for ABC Construction Ltd, as he is answerable to them for the works of others. The work he is carrying out falls within the CIS Scheme, and ABC Construction Ltd must deduct CIS on payments made to Mr. Smith.
What happens if you engage a consultant and they clearly fall under CIS but they dispute your finding? To find out see our blog about what to do if your contractor disputes your decision.
As is often the case with tax things are not always as they at first seem. Construction is an area full of anomalies so getting the right advice is crucial. At Friend & Grant we specialize in building and construction and property investment and development. If you need help and advice on CIS why not contact us and speak to one of our expert team. If you are already a client of Friend & Grant and have a query about CIS please speak to your account manager.
The content in this blog is correct as at 20 October 2022 See terms and conditions.