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HMRC internal manual

Construction Industry Scheme Reform Manual

Register and maintain subcontractor: Gross payment or payment under deduction: Companies acting as undisclosed agents

CISR43600 Action guide contents

Where a company (or person) acts as an agent in setting up construction contracts for another party, they will not generally be the ‘principle’ to that contract either as a contractor or a subcontractor. The word ‘principle’ here means ‘main party to’ or ‘participant’. So in this situation, the contractor and subcontractor will be the principle parties to the contract. In contract law an ‘agent’ has a particular type of relationship with one or both of the principles and may be a ‘disclosed’ or ‘undisclosed’ agent.

The Construction Industry Scheme (CIS) applies to payments that discharge the contractual obligations under a contract whether or not the payments flow through the agent. This means that the contractor will need to verify the true subcontractor and complete the monthly return with their details. They cannot complete the return with details of the agent, even if the agent is registered for CIS.

It will be very rare and even then only under particular legal circumstances that an agent might also be considered to be acting as a principle in the contracts set up. If any party to a contract argues that an agent is also a principle, you should make a formal submission to the CIS Technical Team (CISR97090), your submission should include full details of the arrangements and the contracts in place.

A business may act as a principle in some contracts and as an agent in others. Agents who act as principles for certain contracts may therefore need to be CIS registered. However, where a person (or company) only acts as agent for other parties to a contract (whether contractor or subcontractor) and wish to register for CIS, you must ask for documentary evidence of the contractual arrangements and submit the papers to the CIS Technical Team.

CIS applies to the principles to a contract regardless of whether the agent who sets them up is ‘disclosed’ or ‘undisclosed’. It follows that a contractor who has entered into a contract with a subcontractor through an undisclosed agent will not necessarily know the details of the true subcontractor, there is therefore a very real danger of them being in default of their obligations to both verify the subcontractor and make a proper return of the payments made on their monthly return.

Where a business is;

* receiving payments as an undisclosed agent, or
* as a subcontractor through an undisclosed agent, or
* a contractor has failed to comply because the subcontractor has used an undisclosed agent

you should also submit the case, with full details of the arrangements and contractual terms to the CIS Technical Team.

If you are unsure about how CIS applies to any particular contractual arrangement - whether for a single contract or a series of contracts - you should seek advice from the CIS Technical Team, CISR97090 tells you more about making a submission to this team.