CONSTRUCTION INDUSTRY SCHEME
CONSTRUCTION INDUSTRY SCHEME (CIS)
The Construction Industry Scheme (CIS) was created by HMRC with the aim to reduce tax evasion within the construction industry. The scheme ensures tax deductions are appropriately taken from self-employed subcontractors and paid over to HMRC by contractors.
We work with many contractors and subcontractors in the construction industry. Our services include helping clients to register as a contractor or subcontractor (or both) with HMRC, setting up payments correctly under CIS, filing annual self-assessment tax returns, and providing ongoing advice on any queries that may arise.
CIS REGISTRATION PROCESS WITH HMRC
Contractors – If you pay subcontractors in the construction industry then you need to register with HMRC as a CIS contractor before you take on your first subcontractor. We can help you complete this process correctly.
Subcontractors – If you work in the construction industry as a subcontractor you should register with HMRC as a verified subcontractor. This ensures that contractors only deduct 20% CIS tax from your income, if you are not a verified subcontractor with HMRC then contractors must deduct 30% CIS tax from your income.
Registration processes with HMRC can be daunting and complex, and we can assist with CIS registrations for both contractors and subcontractors to ensure you are operating correctly.
PAYMENTS TO SUBCONTRACTORS BY CONTRACTORS
When a contractor makes a payment to a subcontractor, the contractor will usually make a deduction for tax, unless the subcontractor has a “gross payment” status. The contractor must also issue monthly statements to subcontractors every time they make a CIS deduction from them. This statement must be issued within 14 days of the end of each tax month.
Before making a payment to a subcontractor you must verify the subcontractor with HMRC, the verification process will inform the contractor how much to deduct from a subcontractor’s payments. For registered subcontractors, the tax deduction rate is 20%, for unregistered subcontractors the tax deduction rate is 30% and if the subcontractor has gross payment status then no deductions are made by the contractor. Any deductions made must be paid to HMRC, they then count as advance payments towards the subcontractor’s tax and National Insurance bill.
Contractors should not make any deductions to the following:
- VAT charged
- Equipment which is now unusable (‘consumable stores’)
- Equipment hired for this job (‘plant hire’)
- Manufacturing or prefabricating materials
In terms of ‘materials’, it is important for the contractor to prove that the materials invoiced are valid and realistic, therefore any materials should be accompanied by a receipt or invoice. Travel and fuel costs are no longer allowed under ‘materials’ – all travel costs are categorised as labour and incur the deduction at either 20% or 30%.
PAYMENTS TO HMRC BY CONTRACTORS
As a contractor, you must pay any CIS deductions you’ve taken from subcontractors over to HMRC. You should make one payment each month or quarter.
Contractors are also required to file an online monthly return informing HMRC of all payments made to subcontractors. There are deadlines and penalties for filing these returns late, so it is important that contractors have the correct systems and processes in place, which is something we can assist with.
SELF-ASSESSMENT TAX RETURNS FOR SUBCONTRACTORS
As a CIS subcontractor in the Construction Industry, you are responsible for paying the correct tax and National Insurance, even if deductions have been made by contractors throughout the year. To ensure you have paid the correct tax and National Insurance you must prepare and file an annual self-assessment tax return.
If you require assistance with your self-assessment tax return or help to register as a verified subcontractor please feel free to get in contact and we will ensure your taxes are in order for you.
NEED HELP WITH ANYTHING CIS?
The construction industry can be complex and daunting, especially at first, but with our professional help with the registration process, accounting set up, and on-going support, it can become a quite simple process each month to ensure all returns, statements, and payments are made on-time to HMRC and subcontractors. Please feel free to contact us if you need any help.