CISR15150 - The Scheme: payments: small payments

Under SI2005/2045 reg 18, certain concerns may be authorised not to apply the CIS to small contracts for construction operations. This depends on approval from HMRC.

Eligible contractors

Only ‘deemed contractors’ may apply to operate the small payments arrangement (SI2005/2045 reg 18(2)(a)). These are commercial entities or public bodies classed as contractors by virtue of their expenditure on construction work but which do not carry out construction operations for other parties (see CISR12030 and CISR12050).

Mainstream contractors’, that is, entities whose trading activities include carrying out construction work for others, or providing labour for such work (see CISR12040), are not eligible to operate the arrangement. An application from such a contractor will be refused on the grounds that entities defined as contractors under FA04/S59 (1)(a) are ineligible.

Contract value

The contracts for which the arrangement is operated must not have a value exceeding £1,000, exclusive of VAT after adjustment for the cost of materials (SI2005/2045 reg 18(3)). If the contract value net of materials exceeds £1,000 this condition is not satisfied.

Any cases in which work, which would normally form one contract, is artificially broken down into several smaller contracts will fall outside the terms of the arrangement.

Note: Where it becomes apparent that contracts are being artificially broken a decision will be made as to whether approval should be withdrawn.

Conditions

An entity is eligible to apply for the small payment exemption subject to the following conditions:

  • they are a deemed contractor for the purposes of section 59(1)(b) to (I) as described in CISR12050;
  • they have adequate internal administrative arrangements in place for the placing and payment of small contracts for construction operations;
  • the work which would normally form one contract is not broken down into small contracts, each under £1000 to avoid applying CIS;
  • they accept that any abuse of the arrangement will lead to withdrawal of the approval; and
  • they must notify HMRC of any changes to the arrangement.

If an applicant breaches any of the above conditions, HMRC may revoke the exemption and may seek to recover any CIS deductions which should have been made and may charge the relevant penalties and interest for failing to comply with the obligations of the scheme.

Application

Applications should be made in writing specifying the date from which the arrangement is to be applied and that the eligibility criteria have been met to the CT CIS Centre, see CISR97070. Applications cannot be made retrospectively.

HMRC approval

It is important that contractors do not implement the arrangement until precise arrangements have been agreed with HMRC.

Once exemption is granted contractors need not reapply. However, if there is a change in circumstances, they must let us know immediately by contacting the CT CIS Centre, see CISR97070.