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HMRC internal manual

Construction Industry Scheme Reform Manual

The Scheme: contract payments: travel, subsistence and accommodation

CISR15600 Action guide contents
   

Where a construction contract places an obligation upon a contractor to pay a subcontractor’s expenses (such as travel, subsistence and accommodation expenses) such payments form part of the overall value of the contract, by virtue of FA04/s60. As such they will result in a deduction under the Scheme, by virtue of FA04/s61.

An obligation upon a contractor, under a construction contract, to pay a subcontractor’s expenses will fall within FA04/s60 regardless of whether the obligation is written, verbal, express or implied.

A payment made in respect of a subcontractor’s expenses will fall within FA04/s60 regardless of whether the contractor pays or reimburses the subcontractor, pays their expenses directly or pays a nominated third party.

The total amount deducted by the contractor should reflect the gross amount of the payments due under the contract, including the payment of expenses on the subcontractor’s behalf.  (See examples 1 & 2 below).

A deduction will not be due where a contractor allows the subcontractor to use the contractor’s own facilities - such as vehicles or accommodation. A deduction will not be due, even if the contractor is paying a third-party for the facilities, provided these payments are not passed on to the subcontractor thereafter. However, such arrangements will not be common and may imply the existence of an employer/employee relationship (subject to PAYE) rather than a contractor/subcontractor relationship (subject to CIS). Where a contractor makes a payment to a supplier in respect of a subcontractor’s travel, subsistence or accommodation it is very likely that this is a contract payment and that a CIS deduction is due on that payment.

Where the contractor arranges for a third party to provide accommodation to a subcontractor,  such as a local hotelier, if the contractor pays for that accommodation and at no point passes on all (or some) of those costs of providing that accommodation to the subcontractor, then subcontractors Payment Deductions Statement (PDS) should not include any entry relating to accommodation costs. The contractor will account for this expenditure in their own records but the subcontractor must not claim any accommodation expenses as well, as they have not had to pay for or contribute towards its provision. 

Alternatively, if the contractor passes on all, or some, of the costs of providing the accommodation to the subcontractor, then that amount will be included in the PDS.

Example 1

The value of a construction contract is £10,000, including the payment of the subcontractor’s accommodation expenses. The subcontractor’s hotel accommodation costs £1,000. The contractor pays £1,000 directly to the hotel, leaving £9,000 due to the subcontractor. The contractor should make a CIS deduction at the appropriate rate - 20% in this example. The deduction will be £2,000, based on total payments of £10,000. The contractor should give the subcontractor a PDS showing a gross payment of £10,000, with deductions of £2,000 for CIS and £1,000 for accommodation. The subcontractor will receive £7,000.

 

Example 2

The value of a construction contract is £10,000, including the payment of the subcontractor’s fuel costs. The fuel costs come to £2,000, which the subcontractor pays by credit card. The contractor pays £2,000 directly to the subcontractor’s credit card provider. This leaves £8,000 due to the subcontractor. The contractor should make a CIS deduction at the appropriate rate - 20% in this example. The deduction will be £2,000, based on a total payment of £10,000. The contractor should give the subcontractor a PDS showing a gross payment of £10,000, with deductions of £2,000 for CIS and £2,000 for fuel. The subcontractor will receive £6,000.

Example 3

The value of a construction contract is £9,000.  The contractor allows the subcontractor to use accommodation rented by them. The value of the subcontractor’s accommodation is £1,000, and is never charged to the subcontractor. The contractor has rented the property completely independently of the construction contract.  The payment of rent does not result in a deduction and does not have to go onto the subcontractor’s PDS the contractor should make a CIS deduction at the appropriate rate - 20% in this example. This will be £1,800, based upon a total payment of £9,000. The contractor should give the subcontractor a PDS showing a gross payment of £9,000, with deductions of £1,800 for CIS. The subcontractor will receive £7,200.

Example 4

The value of a construction contract is £9,000.  The contractor invites the subcontractor to use hotel accommodation which they have pre-booked beforehand and is unconnected to the construction contract they are entering into with the subcontractor. The value of that accommodation being made available to the subcontractor is £1,000, and is paid in its entirety by the contractor, who at no point recovers any part of this expenditure from the subcontractor. The payment for the accommodation in these circumstances, does not result in a deduction and does not go onto the subcontractor’s PDS. The contractor should make a CIS deduction at the appropriate rate - 20% in this example. This will be £1,800, based upon a total payment of £9,000. The contractor should give the subcontractor a PDS showing a gross payment of £9,000, with deductions of £1,800 for CIS. The subcontractor will receive £7,200.

A contractor engages multiple subcontractors to work on a 3 month construction job. The nature of the work requires those subcontractors to work away from home during the week and stay in overnight accommodation. As the contractor prefers to have all their subcontractors stay in the same hotel for convenient pick-ups & drop offs each day, that contractor contracts with a local hotelier to provide the contractor with 20 hotel rooms each night (Monday to Thursday) for the next 3 months. The arrangement provides that the hotelier will bill the contractor for the provision of those rooms at the end of each of the 3 months, regardless of whether or not those rooms were always fully occupied. The only parties contracting into this accommodation arrangement are the hotelier and the contractor.

When first engaging the subcontractors, the contractor offers them free overnight accommodation at that hotel, advising the subcontractors that they will not be billed by the contractor nor the hotelier if they use that accommodation, nor will the cost of its provision be deducted from the construction payments being made to them for providing their services.

In this case, if a subcontractor were paid £2500 at the end of each of the 3 months they worked for that contractor, then if that subcontractor was liable to the 20% CIS deduction on their construction payments received, then each CIS PDS would show a gross payment of £2500 with a £500 CIS deduction. The subcontractor would therefore receive a £2000 payment each month.

However, again in this example the accommodation arrangement provided that the subcontractor ultimately funded the cost of the accommodation by either (i) the contractor reducing the payments they made to the subcontractor each month to  recoup the costs that contractor had incurred in providing the accommodation, or (ii) the  subcontractor reimburses the contractor for the arranged accommodation by any other means  then the contractor should include the payment on the PDS  -  subcontractor was liable to the 20% CIS deduction on their construction payments received, accommodation costs totaled £300, then each  PDS would show a gross payment of £2500,  with £300 accommodation and a £560 CIS deduction. The subcontractor would therefore receive a £2240 payment in each month.