Starting out
VAT, PAYE and CIS for plant hire businesses
When a plant hire business needs to register for VAT and PAYE, how the Construction Industry Scheme treats operated and bare hire, and the records to keep.
Key takeaways
- VAT registration is compulsory once taxable turnover passes £90,000 in any rolling 12 months.
- On hire purchase, VAT on the machine is usually paid upfront; leases spread it across rentals.
- Register for PAYE before you pay your first employee, including yourself as a company director.
- Operated plant hire is within CIS. Bare hire without an operator is outside it.
- CIS deductions are 20% if registered and 30% if not, unless you hold gross payment status.
VAT
You must register for VAT if your taxable turnover for the last 12 months goes over £90,000, or you expect it to go over in the next 30 days. Below that, registration is voluntary.
Many hire firms register voluntarily from day one. Trade customers can reclaim the VAT you charge, so it doesn't make you more expensive to them, and you can reclaim VAT on machines, fuel, repairs and most other running costs (insurance is VAT-exempt, so there's none to reclaim). If most customers are homeowners who can't reclaim VAT, staying unregistered while small may keep you cheaper. Ask your accountant which applies.
VAT and plant finance
| Finance type | When VAT is paid | Cash-flow effect |
|---|---|---|
| Hire purchase | Usually upfront on the full price | Big payment at the start, reclaimed on the next VAT return if registered |
| Finance or operating lease | On each rental | Spread over the term |
| Buying outright | At purchase | Reclaimed on the next return if registered |
More in plant hire finance options.
PAYE
Register as an employer with HMRC before you pay anyone through payroll, then report pay every time you pay staff. In a limited company that includes directors taking a salary. You'll also need employers' liability insurance and a workplace pension for eligible staff.
Self-employed operators and drivers are an alternative, but employment status depends on how they actually work, not what the contract says. Get it wrong and you can owe PAYE and National Insurance backdated.
CIS and plant hire
The Construction Industry Scheme applies to payments for construction work. For plant hire, HMRC's rule is simple:
| Type of hire | Within CIS? |
|---|---|
| Plant hired with an operator | Yes: the customer (as contractor) deducts CIS from the labour element |
| Plant hired without an operator (bare / self-drive) | No: outside the scope of CIS |
So a self-drive hire firm normally invoices without CIS deductions, while an operated hire firm working for construction contractors must register as a subcontractor. If you also pay subcontracted operators yourself, you are a contractor too and must register, verify them and make deductions.
CIS deductions
| Your CIS status | Deduction from labour |
|---|---|
| Registered subcontractor | 20% |
| Not registered | 30% |
| Gross payment status | None |
Deductions count as advance payments of your tax and National Insurance. Gross payment status means no deductions, which helps cash flow; you can apply if you pass HMRC's business, turnover and compliance tests.
Records to keep
- Sales invoices showing machine, hire period, delivery and any operator element separately.
- Purchase invoices and finance agreements for every machine.
- CIS statements from contractors, and monthly returns if you are a contractor.
- Payroll records, VAT returns and mileage or fuel records.
- Keep records for at least six years; use software that supports Making Tax Digital.
Key dates
| What | When |
|---|---|
| VAT registration | Within 30 days of passing the threshold |
| CIS monthly return (contractors) | By the 19th of each month |
| PAYE reporting | On or before each payday |
| Corporation Tax registration | Within 3 months of starting to trade |
| Self Assessment registration | By 5 October after the tax year you start |
Check deadlines on GOV.UK; they can change.
FAQs
Common questions
Does CIS apply to plant hire?
Should a new plant hire company register for VAT voluntarily?
What are the CIS deduction rates?
Keep going
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This guide is general information for people setting up a plant hire business in the UK. It is not legal, tax, insurance or financial advice. Rules and thresholds change, so check current guidance on GOV.UK and take advice from an accountant, solicitor or broker before acting.