Are you a contractor?
You might not consider yourself a contractor, but HM Revenue and Customs (HMRC) could. Richard Montgomery, Symington Mackell writes for Inside Letting about existing taxation rules affecting landlords.
Over recent years, landlords and letting agents have become used to the ever-increasing obligations placed upon them by HMRC. Whilst much has been written about the recent tax changes affecting residential letting, it’s worth considering some existing areas of taxation which might catch out the unwary. One such area is the Construction Industry Scheme (CIS).
CIS was introduced by HMRC to tackle the issue of cash payments in the construction industry and the consequential lost tax resulting from such transactions. Whilst one might assume construction concerns larger commercial projects, from HMRC’s perspective it covers any area of construction work. This includes site preparation, decoration, alteration, repair and refurbishment, however there are some exclusions, such as carpet fitting and delivering materials to site, amongst others. CIS applies to you if you are a builder or property developer and also if your business is not in the construction industry but spends an average of more than £1 million annually in any three-year period. If you fall into any of these categories and you pay subcontractors to carry out construction work, you are a contractor and subject to CIS.
In practice, this means you are required to register as a contractor with HMRC and must deduct tax at source from payments to a subcontractor and pass it on to HMRC. Subcontractors don’t have to register for CIS, but by not doing so, deductions made by the main contractor are subject to a higher rate deduction of 30%. It is more sensible for subcontractors to be registered so they may be able to benefit from a lower rate of tax deduction or no deduction at all, depending on their circumstances.
Many landlords and some letting agents regard themselves as being property developers as well, so care should be taken when considering construction related work that it doesn’t push them into the category of ‘contractor’. We keep hearing that HMRC are taking a tougher line on the collection of tax, so it makes sense be well informed about which taxes apply in order to protect your business.
More information can be found on the government website