Are Your Contractors Suitable for CIS?

CIS

If you’re a recruiter with clients in the construction industry, the chances are some of your contractors are registered on the Construction Industry Scheme (CIS). You may even find yourself advising contractors about how it works and whether they should register. So how does the scheme work, and who is it suitable for?

How the CIS works

Under the CIS, money is deducted from a contractor’s payments and passed to HMRC. These deductions then count as advance payments against the contractor’s tax. After the end of the tax year, the contractor completes a self-assessment tax return, and they will either pay any additional tax owed, or receive a refund of any overpayment. Most CIS contractors overpay and claim a refund with their tax return.

Who is the CIS appropriate for?

The CIS applies if your contractors are self-employed and they’re engaged to carry out construction work to either buildings or structures, or civil engineering works like roads and bridges.

The definition of construction work includes:

  • preparing the site, e.g. laying foundations and providing access works
  • demolition and dismantling
  • building work
  • alterations, repairs and decorating
  • installing systems for heating, lighting, power, water and ventilation
  • cleaning the inside of buildings after construction work

But doesn’t include:

  • architecture and surveying
  • scaffolding hire (with no labour)
  • carpet fitting
  • making materials used in construction including plant and machinery
  • delivering materials
  • work on construction sites that’s clearly not construction, e.g. running a canteen or site facilities

Are your contractors self-employed?

One important question a recruiter needs to ask when engaging CIS contractors, is whether they are genuinely self-employed. If they’re not, they need to pay tax and NI at the same rate as an employee, and the recruiter will have to pay Employers National Insurance.

If your contractors are incorrectly engaged as self-employed when they’re actually employed for tax purposes, you will be liable for the additional tax and NICs, including interest and penalties.  

Your contractors will be considered to be “employed for tax purposes” if the end client has the right to supervision, direction or control. It’s the right that’s important, not whether it’s exercised or not, and if one of the three applies the contractor is caught – it isn’t necessary for all three to apply.

The definition of Supervision, Direction and Control (SDC)

Supervision applies when someone oversees the contractor to ensure the work is completed, and/or that it’s done to the required standard. It can also include helping someone develop their skills and knowledge.

Direction is where someone makes the contractor complete the work in a certain way, or provides instructions, guidance or advice as to how the work should be done.

Control applies when someone dictates which work the contractor does and how they should do it. This also includes having the ability to move the contractor from one task to another as priorities change.

Other indications that your contractors are self-employed

If your contractors are caught by SDC, you have to treat them as employees. They’re not caught, there are some other indications that can strengthen the argument that they’re self-employed. These include:

  • Not entitled to sick pay or paid holiday
  • Provide their own tools and equipment
  • Responsible for correcting errors or unsatisfactory work at their own cost
  • Can work for more than one client
  • Pay for their own training

If your contractors are employed for tax purposes

If your contractors are employed, rather than self-employed, it’s extremely risky to treat them as self-employed and pay them through the CIS. In this circumstance, the best option for you and for them is to direct them to an FCSA accredited umbrella company, like Orange Genie Umbrella. This will protect you from any additional tax liability, and ensure your contractors have the rights and benefits of employment, rather than just paying tax as if they were employed.

If you have questions or if we can help in any way, please call our expert team on 01296 489483 or email info@orangegenie.com.

 

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