Sub-Contractors in the Construction Industry Scheme

140  There is still considerable doubt whether, and if so to what extent, the CIS applies to PFI projects generally.  Whilst most PFI projects involve a material element of construction, and therefore the scheme would seem to apply, there are strong arguments that what the Local Authority is actually paying for is an ongoing service, provided by a service provider.  HM Revenue and Customs have yet to publish any definitive guidance on this although an amendment to the current draft legislation accepts from the operation of CIS any payments which a public body makes under a PFI project.  This is clearly welcome news but, pending implementation of the new scheme, general practice is to include contractual provisions to cover the operation of the existing scheme.  

141  The Model Contract contains suitable drafting which seeks to give the Local Authorities comfort that should HM Revenue and Customs insist on the operation of the CIS, the Local Authority has contractual rights to make relevant deductions from the service payment as and when required to do so by law, subject to the provision by the Service Provider of the necessary documentation to enable the authority to make the payments without the deductions.  

142  The legislation governing the CIS Scheme is set out in Chapter 3 of Part 3 of the Finance Act 2004, the Income Tax (Construction Industry Scheme) Regulations 2005 and the Income Tax (Construction Industry Scheme) (Amendment) Regulations 2007.  This came into force in April 2007 and replaced the previous legislation.  The drafting in the Model Contract reflects the new legislation.