CISR43260 - Register and maintain subcontractor: Gross payment or payment under deduction: Companies acting as undisclosed agents
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Where a company (or person) acts as an agent in setting up construction contracts for another party, they will not generally be the ‘principal’ to that contract either as a contractor or a subcontractor. The word ‘principal’ here means ‘main party to’ or ‘participant’. So in this situation, the contractor and subcontractor will be the principal parties to the contract. In contract law an ‘agent’ has a particular type of relationship with one or both of the principals 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 principal in the contracts set up. (This content has been withheld because of exemptions in the Freedom of Information Act 2000)
A business may act as a principal in some contracts and as an agent in others. Agents who act as principals for certain contracts may therefore need to be CIS registered. (This content has been withheld because of exemptions in the Freedom of Information Act 2000)
CIS applies to the principals 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.