The Scheme: payments: materials
|CISR15600||Action guide contents|
A deduction made under the Scheme should only be applied to that part of the payment not representing the direct cost of materials to the subcontractor (FA04/S61 (1)). ‘Direct cost’ means what the purchaser can demonstrate they paid for the materials.
Note that SI2005/2045 reg 4(3)(b)(iii), makes it the contractor’s responsibility to be satisfied that the direct cost of materials is reasonable.
Materials cost not disclosed or overstatedOn occasions a contractor may be unable to obtain satisfactory information from the subcontractor about the cost of materials. In this case the contractor may make a reasonable estimate of the cost of materials and apply the deduction to the remainder.
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.
The contractor should also adopt this approach if the materials charge appears to have been overstated. Under a ‘supply and fix’ contract the subcontractor may claim, for instance, that the charge relates wholly to the supply of equipment (that is, ‘materials’), and that installation is ‘free’. This may be how matters are represented for marketing purposes but in reality the subcontractor incurs a commercial cost for both the equipment and its installation. If the equipment cost is not specified, the contractor must estimate it to determine what part of the overall payment is subject to deduction.