HMRC crackdown on CIS scaffolding payments

By Gray Gibson, National Federation of Roofing Contractors. 

NFRC guidance and best practices for contractors navigating HMRC labour and materials splits. 

With long days and busy worksites, keeping up with changing regulations and policies can be hard for roofing professionals. That’s why the National Federation of Roofing Contractors (NFRC) works to stay on top of issues and provide their members with the information they need to stay compliant. Issues like recent investigations by HM Revenue and Customs (HMRC) into contractors deducting money from a subcontractor’s payments under the Construction Industry Scheme (CIS). 

What is happening 

HMRC is investigating roofing businesses that have not been reporting the labour materials split accurately due to incorrect information from scaffolding subcontractors. HMRC’s outsourcing of this supervision can potentially cost your business hundreds of thousands of pounds in fines if you are not aware of it. 

What can you do to avoid fines 

1 - Understand the rule   

Under CIS, any payment for scaffolding you receive from a subcontractor who owns that scaffolding should generally be treated as part of the taxable “labour” element, not “materials.” In HMRC’s view, owned scaffolding is treated as “plant,” which does not qualify for a CIS deduction except for genuine consumables like fuel.    

2 - Require proof for hired equipment   

If a scaffolder claims a “materials” deduction because they’re hiring scaffolding from a third party for your specific job, make sure you see genuine evidence of this hire cost (e.g. the invoice from the scaffold supplier that explicitly relates to your project). Otherwise, HMRC may later disallow that “materials” portion and come after you for the back-tax for up to the previous six years.   

3 - Beware of invalid splits   

Do not accept invoice splits (e.g. 50% “labour”/ 50% “materials”) at face value when the scaffolder owns the scaffolding. HMRC will enforce this rule, leaving contractors liable for large sums of unpaid tax.   

4 - Consequences of negligence   

If HMRC disallows “materials” deductions, they can reclaim tax from the main contractor, even if your scaffolder is still trading. This can amount to fines of tens (or even hundreds) of thousands of pounds.   

5 - Protect yourself   

Obtain declarations from subcontractors that scaffolding is genuinely third-party hired, along with supporting paperwork for each project.   

Where no third-party hire can be proven, treat the whole amount (minus small consumables) as “labour.”  If in doubt, insist on invoicing that clearly separates valid “consumables” from labour and excludes any unsubstantiated “materials” charge for owned scaffolding.   

6 - Seek advice   

This area is more complex than some accountants may expect. Engage a CIS-knowledgeable professional if you have any concerns. Although this guidance relates to scaffold the rule applies to all owned plant machinery such as cranes, cement mixers, concrete pumps, earth moving equipment and compressors as detailed in the Construction Industry Scheme Reform Manual.   

Learn more 

For more information on this topic, please consult the Construction Industry Scheme Reform Manual, and for more information on plant hire under CISR14600. The Money Advice Trust also provides a free ‘Business Debtline’ to support small businesses navigating issues such as this. Contact them here if you require more support: https://www.businessdebtline.org/  

Disclaimer: This general guidance is provided in line with HMRC guidelines and is in response to NFRC member feedback, NFRC does not provide individual tax advice which should be sought from a professional body or accountant. 

Original article source: NFRC