If you operate as a subcontractor in the construction industry, you should pay tax under the Construction Industry Scheme (CIS). In this blog we explore what the CIS is in more detail and help you understand how it can affect you.
What is CIS?
CIS is a tax deduction scheme that applies to those who operate as a subcontractor in the construction industry. It involves contractors deducting money from a subcontractor’s payments and passing them on to HMRC. It was initially set-up to minimise tax evasion in the industry, protect construction workers from false employment, and ensure that tax and NI contributions are covered for contractors.
CIS applies to all payments made under a construction contract (that are not part of an employment contract). It is important to ensure that the contract covers matters relating to construction operations and nothing else, otherwise the subcontractor could find that they are being taxed by the CIS for jobs that are actually exempt from the scheme.
Who does CIS apply to?
You must register to the scheme if you, as a contractor, pay subcontractors for construction work, or your business has spent more than £3 million on construction in the 12 months since your first payment.
If you are a subcontractor who carries out construction work for a contractor, you must also register, this is whether you are self employed, in a partnership or a limited company.
What works are subject to CIS?
CIS covers most construction work jobs, from demolition, to building works, and alterations and repairs. You can view the full list on the HMRC website. However, there are certain exceptions. You do not have to register for CIS if you only do the following jobs:
- Architecture and surveying
- Carpet fitting
- Work in a plant that produces construction materials
- Scaffolding hire
- Delivery of construction materials
- Work on a construction site but do not do the manual construction, for example, working on the site canteen.
Whether you are based in the UK or abroad, if you carry out construction work in this country, you must still register as the scheme still applies.
How do contractors manage CIS?
As a contractor, before you take on subcontractors for work, you must check that they are registered for CIS. If the subcontractor is not registered, 30% is to be withheld from their invoice. If they are registered, this goes down to 20%. HMRC will let you know how much to deduct once your subcontractors are verified.
Following registering for CIS, you should be set up for payment. Payments to HMRC must be made before the 22nd of each month, otherwise you may incur interest charges and other penalties. The CIS deductions must be paid with any PAYE and National Insurance deducted by the payroll scheme by the same date.
If you are a contractor, ensure that you know the employment status of all the subcontractors that have completed work for you (and that you will be invoicing) before you file your monthly CIS return. If they are incorrect it could not only lead to confusion, but also fines.
It is also important that you keep records of the invoices and deductions you have made from subcontractors payments for at least three years. This is to ensure that you have evidence if HMRC wish to see your CIS history.
Where to find CIS advice
Managing tax and finances while running your business is challenging at the best of times. CIS adds further complexity, but it shouldn’t be something to be daunted by. Consider getting in touch with your accountant to see if they can manage this for you.
At Steele Financial we can guide you through the Construction Industry Scheme. From HMRC submissions, to providing CIS statements, we take care of everything. This leaves you with more time to focus on your work and less time spent worrying about bookkeeping and financial admin.
Get in touch if you want to find out more about us and how we can help manage your finances.