What to do if your subcontractor or consultant disputes your decision to assess them under CIS

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 (CIS) where tax has to be potentially stopped on the labour element of the service provided.

In our previous blog entitled ‘Professionals’ in the Construction Industry – Do I Need to Deduct CIS? we looked at situations where architects, surveyors and consultants may fall under CIS and gave some specific examples.

But what then happens if they or any other subcontractor dispute your findings and argue that they should not be treated under CIS?

If you find yourself in that situation, there are three different steps you could take:

1. Don’t engage the subcontractor/professional, find a different one – penalties for incorrect or missing declarations can be hefty (up to £3,000 for each offense), so if you have taken advice and are certain you should be deducting, but cannot come to an agreement with them, then you may be safer to walk away and find a different person to carry out the works.
2. Ask the subcontractor/professional to register for gross payment status – if the subcontractor/professional meets certain criteria they can register for gross payment status with HMRC, meaning that you aren’t under obligation to deduct any CIS tax from them. This means the subcontractor/professional can receive their payment in full as they usually would without CIS applying. Beware though, that payments made under gross status must still be declared on a CIS Return to HMRC.
3. Put the contract forward to HMRC to review before any payments are made – if in doubt, you are able to contact the CIS Team at HMRC for clarification. They will review the contract and the activities the subcontractor/professional will be undertaking and inform you whether CIS will apply.

It is important to get CIS right. If HMRC were to enquire and conclude that you should have been deducting CIS when you haven’t been, it is you who is liable for the underpaid tax, not the subcontractor and so it is vital that consideration is given to the CIS implications of any new subcontractor you engage within your construction project.

Construction and property in general are areas full of opportunities and pitfalls 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 25 October 2022 See terms and conditions.