- Should payments for plant hired by my client be included on the contractor’s monthly CIS300 return?
- Can plant be claimed as materials by subcontractors?
Regulation 4 of SI 2005/2045 requires that monthly returns must be made by contractors including, amongst other things, the amounts of contract payments within s60 FA 2004 and the costs of materials where contract payments are made under tax deduction. It has always been a practical problem with CIS compliance in identifying which payments are within the scheme and so should be included in these returns. In addition, s61 FA 2004 allows the cost of materials to be excluded from the sums on which tax is deducted by the contractor without defining what is meant by materials. As a result, most advisers will follow HMRC’s guidance on what payments are within the scheme and what constitutes materials.
Should Payments for Plant Hire be Included on the Contractor’s Monthly CIS300 Return?
Of primary importance is to distinguish between the hiring of plant with or without an operator. HMRC has summarised the position in CISR14260 as follows:
When a contractor hires plant from another person, the contractor needs to decide whether or not to apply CIS to the payments.
- Payments for the hire of plant with an operator for use on site are within the scope of the CIS scheme and therefore, do need to be shown on the contractor’s monthly CIS300 return
- Payments for the hire of plant without an operator are not within the scope of the CIS scheme and therefore, do not need to be shown on the contractor’s monthly CIS300 return.
Where the plant is scaffolding, HMRC provide separate guidance at CISR14030:
- Where the contract is to supply and erect/dismantle the scaffolding, all payments under that contract should be included on the contractor’s monthly CIS300 return.
- If the contract is for supply only (scaffolding hire, with no labour), none of the payments need to be included on the contractor’s monthly CIS300 return.
Can the Plant be Claimed as Cost of Materials?
The direct cost of materials claimed by a subcontractor means what the subcontractor can demonstrate they paid for the materials in carrying out the work under contract.
- If the subcontractor already owns the plant, it cannot be claimed as materials, as it is not a “direct cost to any other person of materials used or to be used in carrying out the construction operations to which the contract under which the payment is to be made relates” – S61(1) FA 2004. This includes plant already bought under a Hire Purchase Agreement. However, consumable items, for example the cost of fuel required to run/power the plant, may be claimed as materials.
- If the subcontractor hires the plant from a third party, the cost of the plant hire and any consumable items, for example the cost of fuel required to run/power the plant, may be claimed as materials.
So, if a subcontractor shows plant as materials on their invoice, the contractor should ask whether they own the plant being supplied, or whether they have had to hire it in from a third party. It is the contractor’s responsibility to check this under regulation 4 of SI2005/2045 (see CISR15060), and to submit complete and accurate CIS300 returns to HMRC. The contractor may be liable for any tax arising from under-deductions or incomplete returns and be liable to associated interest and penalties.
HMRC will often query plant hire and materials during their compliance checks, and will often request evidence to show that the plant has been hired in from a third party.
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