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The Construction Industry Scheme (CIS) was introduced by HMRC as a way of ensuring that payments made under construction contracts are subject to tax deductions. First introduced in 1971 and reformed under subsequent governments, the primary aim of CIS is to cut down on tax evasion by self-employed subcontractors.
We work with many clients in the construction industry, helping to set up payments under CIS and answering any queries which may come to light. One area which has caused some concern recently is the question of CIS and materials.
When invoices come in from subcontractors the cost of materials is listed separately to the labour costs, and as a valid expense, materials are not subject to the 20% CIS tax deduction. Travel and fuel costs are no longer allowed under 'materials' – all travel costs are categorised as labour and incur the 20% deduction.
HMRC has identified that there may be cases where subcontractors inflate the cost of materials to generate extra untaxed income. As a result, HMRC is increasingly likely to ask a contractor to prove that an expense is not overstated and mirrors the actual cost incurred by the subcontractor.
Advice to contractors regarding CIS and materials
Like it or not, the onus is on the contractor to prove that the cost of materials is genuine. Therefore we advise clients in the construction industry to ask subcontractors for proof in the form of receipts or invoices. It's also a good idea to cross-check current prices to confirm that the price of materials seems realistic.
Need help with CIS bookkeeping and payroll?
Working in the construction industry can be complex, but with the help of a dedicated bookkeeper your returns will be filed to HMRC accurately and on time. We offer bookkeeping services to both contractors and subcontractors (and indeed for those clients who fall into both categories).
Penalties for late submissions are high, so it's important that your company is professional and prompt when it comes to dealing with HMRC.
We offer free payroll health check meetings for prospective clients. To make an appointment with a member of our friendly AMR team, contact us today.