Hmrc regulations for sub contractors
Discussion
I wondering if anyone else has had any correspondence regarding new hmrc regulations ? The copy and paste below is from one of the companies we sub contract to, for reference we have had nothing such like from any of the others ? Things are not escalating positively with this as now we are being told what we can charge for certain items. Please read if you don’t fall asleep half way and comment freely.
Morning
In December 2022 the HMRC informed all Contractors in the Construction Industry that they were taking steps to ensure that all materials on Invoices were correct . . They estimate that they are losing millions of pounds in revenue every year due to incorrect materials being accepted and income tax not been deducted.
Briefly the regulations are as follows:
All materials must be listed separately with full description and correct pricings.
Any materials reclaimed must be a specific part or component needed for the repair or installation in question .
Small Hardware items such as screws , nails , gaskets etc are not considered to be a genuine material cost but are overheads .
I would like to explain the last rule in simple terms , as I know this is causing some dismay amongst you.
When a company uses their own engineers to complete a job , they pay the engineer a standard hourly rate of pay . The company will also have added expenses and overheads , which include providing a van that is taxed insured and serviced and provide all fuel necessary . The Company needs to pay for a large selection of tools and fills the vans with an enormous selection of hardware items , too numerous to mention .
When a company employ a subcontractor to complete a job , the contractor will estimate his average costs and expenses included the hardware costs which will then be added to his hourly pay rate and charge these at 1 cost , namely the labour charge , which is always considerable higher than the normal standard rate of pay as is expected.
The HMRC is of the opinion therefore that any small items have been included in the labour charge and cannot be claimed for again.
Changes have taken place over the last few months so that the HMRC can fully monitor the situation . When we transmit our CIS return through the Government Gateway , any data on our software relating to the subcontractors is also transmitted and checked for errors or abnormalities.
The software that the HMRC uses is extremely sophisticated and will detect words such as materials , goods , parts , misc , etc , various , screws gaskets etc, It also memorises our materials and costs and will highlight any changes in prices.
If any abnormalities or errors are highlighted on the return , we will be automatically fined and penalties and interest wil also be charged as well as income tax on the total of the errors. The HMRC can at any time ask us to produce the receipt for these goods or failing this , a precise and accurate notification to prove the costs . This information will be taken from the internet at this point , but we will be charged interest until the price is confirmed. If the price of the materials claimed do not agree with the amounts listed on the internet we will of course have further charges and penalties to pay .
To avoid all these penalties and charges we will need to check all invoices before processing but am sure that you can understand that under the circumstances we have no other option.
Morning
In December 2022 the HMRC informed all Contractors in the Construction Industry that they were taking steps to ensure that all materials on Invoices were correct . . They estimate that they are losing millions of pounds in revenue every year due to incorrect materials being accepted and income tax not been deducted.
Briefly the regulations are as follows:
All materials must be listed separately with full description and correct pricings.
Any materials reclaimed must be a specific part or component needed for the repair or installation in question .
Small Hardware items such as screws , nails , gaskets etc are not considered to be a genuine material cost but are overheads .
I would like to explain the last rule in simple terms , as I know this is causing some dismay amongst you.
When a company uses their own engineers to complete a job , they pay the engineer a standard hourly rate of pay . The company will also have added expenses and overheads , which include providing a van that is taxed insured and serviced and provide all fuel necessary . The Company needs to pay for a large selection of tools and fills the vans with an enormous selection of hardware items , too numerous to mention .
When a company employ a subcontractor to complete a job , the contractor will estimate his average costs and expenses included the hardware costs which will then be added to his hourly pay rate and charge these at 1 cost , namely the labour charge , which is always considerable higher than the normal standard rate of pay as is expected.
The HMRC is of the opinion therefore that any small items have been included in the labour charge and cannot be claimed for again.
Changes have taken place over the last few months so that the HMRC can fully monitor the situation . When we transmit our CIS return through the Government Gateway , any data on our software relating to the subcontractors is also transmitted and checked for errors or abnormalities.
The software that the HMRC uses is extremely sophisticated and will detect words such as materials , goods , parts , misc , etc , various , screws gaskets etc, It also memorises our materials and costs and will highlight any changes in prices.
If any abnormalities or errors are highlighted on the return , we will be automatically fined and penalties and interest wil also be charged as well as income tax on the total of the errors. The HMRC can at any time ask us to produce the receipt for these goods or failing this , a precise and accurate notification to prove the costs . This information will be taken from the internet at this point , but we will be charged interest until the price is confirmed. If the price of the materials claimed do not agree with the amounts listed on the internet we will of course have further charges and penalties to pay .
To avoid all these penalties and charges we will need to check all invoices before processing but am sure that you can understand that under the circumstances we have no other option.
DarrenO'D' said:
The software that the HMRC uses is extremely sophisticated...
I would call their bluff just based on this 
HMRC manual said:
You may receive an approach from a subcontractor who is reluctant to disclose the cost of materials because, for instance, they are charging a substantial ‘mark up’ to the contractor. You should advise the subcontractor that the law is clear on this and that if the subcontractor withholds this information the contractor will be entitled to estimate the cost of materials.
worth reading here: https://www.gov.uk/government/publications/changes...Sounds as though different companies are taking different approaches to understanding material cost v. 'income'
I would read the 2021 changes the same way:
You charge an invoice of £10k - they have to sort out income tax under CIS, so need to know what is income / what is material...
If you charge £5k for labour, and £5k for materials they will pay tax on the £5k labour...
HMRC though are saying that you are inflating the price of materials to avoid some of the labour costs being taxed and that if the market value of your materials is actually £3k you must claim £7k labour and £3k materials and they will deduct more from you under CIS (arguably if you inflate the materials cost you are making a profit on the materials and presumably carry your own tax liability, but I assume that the construction industry ability to not pay tax - which lead to CIS in the first place - means that HMRC would prefer where possible to capture the tax through CIS not chase lots of jobbing builders and small sub-contractors...)
So the law changed in 2021 and as a result, you either have to demonstrate the market value of the materials or the company to which you contract is allowed to make its own market valuation and use that instead... so makes sense of the email...
Edited by akirk on Friday 29th September 10:42
DarrenO'D' said:
Thanks I will take a look, just as I side note, my company is gross status for all works so we have no deductions made from main contractor anyway
I am definitely in the place of just enough knowledge to be dangerous on this!The points made above were more to reflect on why they might have sent such an email - The whole way in which HMRC seem to work now is to lean on those who are most likely to find it a hassle - to make others pay
long overdue reformI understand many people in the construction industry swing the tax lead as hard as possible, but from our point of view, we are told we cannot have “ miscellaneous “ charges even for a small >£10 amount but must absorb these into our labour charge, under guidance from the government, I just don’t believe it is correct or particularly fair
DarrenO'D' said:
I wondering if anyone else has had any correspondence regarding new hmrc regulations ? The copy and paste below is from one of the companies we sub contract to, for reference we have had nothing such like from any of the others ? Things are not escalating positively with this as now we are being told what we can charge for certain items. Please read if you don’t fall asleep half way and comment freely.
Morning
In December 2022 the HMRC informed all Contractors in the Construction Industry that they were taking steps to ensure that all materials on Invoices were correct . . They estimate that they are losing millions of pounds in revenue every year due to incorrect materials being accepted and income tax not been deducted.
Briefly the regulations are as follows:
All materials must be listed separately with full description and correct pricings.
Any materials reclaimed must be a specific part or component needed for the repair or installation in question .
Small Hardware items such as screws , nails , gaskets etc are not considered to be a genuine material cost but are overheads .
I would like to explain the last rule in simple terms , as I know this is causing some dismay amongst you.
When a company uses their own engineers to complete a job , they pay the engineer a standard hourly rate of pay . The company will also have added expenses and overheads , which include providing a van that is taxed insured and serviced and provide all fuel necessary . The Company needs to pay for a large selection of tools and fills the vans with an enormous selection of hardware items , too numerous to mention .
When a company employ a subcontractor to complete a job , the contractor will estimate his average costs and expenses included the hardware costs which will then be added to his hourly pay rate and charge these at 1 cost , namely the labour charge , which is always considerable higher than the normal standard rate of pay as is expected.
The HMRC is of the opinion therefore that any small items have been included in the labour charge and cannot be claimed for again.
Changes have taken place over the last few months so that the HMRC can fully monitor the situation . When we transmit our CIS return through the Government Gateway , any data on our software relating to the subcontractors is also transmitted and checked for errors or abnormalities.
The software that the HMRC uses is extremely sophisticated and will detect words such as materials , goods , parts , misc , etc , various , screws gaskets etc, It also memorises our materials and costs and will highlight any changes in prices.
If any abnormalities or errors are highlighted on the return , we will be automatically fined and penalties and interest wil also be charged as well as income tax on the total of the errors. The HMRC can at any time ask us to produce the receipt for these goods or failing this , a precise and accurate notification to prove the costs . This information will be taken from the internet at this point , but we will be charged interest until the price is confirmed. If the price of the materials claimed do not agree with the amounts listed on the internet we will of course have further charges and penalties to pay .
To avoid all these penalties and charges we will need to check all invoices before processing but am sure that you can understand that under the circumstances we have no other option.
Speaking as a Chartered accountant with over 20 years experience, the majority of that is nonsense. They appear to be fishing for information on how and what you charge.Morning
In December 2022 the HMRC informed all Contractors in the Construction Industry that they were taking steps to ensure that all materials on Invoices were correct . . They estimate that they are losing millions of pounds in revenue every year due to incorrect materials being accepted and income tax not been deducted.
Briefly the regulations are as follows:
All materials must be listed separately with full description and correct pricings.
Any materials reclaimed must be a specific part or component needed for the repair or installation in question .
Small Hardware items such as screws , nails , gaskets etc are not considered to be a genuine material cost but are overheads .
I would like to explain the last rule in simple terms , as I know this is causing some dismay amongst you.
When a company uses their own engineers to complete a job , they pay the engineer a standard hourly rate of pay . The company will also have added expenses and overheads , which include providing a van that is taxed insured and serviced and provide all fuel necessary . The Company needs to pay for a large selection of tools and fills the vans with an enormous selection of hardware items , too numerous to mention .
When a company employ a subcontractor to complete a job , the contractor will estimate his average costs and expenses included the hardware costs which will then be added to his hourly pay rate and charge these at 1 cost , namely the labour charge , which is always considerable higher than the normal standard rate of pay as is expected.
The HMRC is of the opinion therefore that any small items have been included in the labour charge and cannot be claimed for again.
Changes have taken place over the last few months so that the HMRC can fully monitor the situation . When we transmit our CIS return through the Government Gateway , any data on our software relating to the subcontractors is also transmitted and checked for errors or abnormalities.
The software that the HMRC uses is extremely sophisticated and will detect words such as materials , goods , parts , misc , etc , various , screws gaskets etc, It also memorises our materials and costs and will highlight any changes in prices.
If any abnormalities or errors are highlighted on the return , we will be automatically fined and penalties and interest wil also be charged as well as income tax on the total of the errors. The HMRC can at any time ask us to produce the receipt for these goods or failing this , a precise and accurate notification to prove the costs . This information will be taken from the internet at this point , but we will be charged interest until the price is confirmed. If the price of the materials claimed do not agree with the amounts listed on the internet we will of course have further charges and penalties to pay .
To avoid all these penalties and charges we will need to check all invoices before processing but am sure that you can understand that under the circumstances we have no other option.
Everything you need is here:
http://www.hmrc.gov.uk/gds/cisr/attachments/cis340...
Section 3 is fairly relevant.
So they have taken a few truths and expanded them massively to suit themselves for whatever reasons.
In terms of what data they submit to HMRC, all they send is the subcontractor name, tax reference, gross invoice, materials and tax deducted. Anything else is a lie.
And finally, HMRC systems being sophisticated! That's the biggest lie of all.
It's quite shocking how brazen that email is. I would not be happy.
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