CIS is an HMRC initiative designed to maximise the tax revenue generated by the construction industry.
The Construction Industry Scheme – to give its full name – consists of a detailed set of HMRC rules about the payments that are made between contractors and subcontractors, to ensure the correct amounts of tax are paid.
CIS applies to both contractors and subcontractors and also applies to businesses that spend £1m+ p.a. on construction, even if this is not their main industry.
It covers most construction work, including site preparation, decorating and refurbishment.
If you fall into any of the above categories then registering for CIS is a must. When you register you will be asked to confirm whether it is as a contractor or a subcontractor as there are different rules to be applied depending on which category you fall into.
It is possible to register as both a contractor and a subcontractor if required. This is often the case if you are a subcontractor who in turn then contracts the work out to other subcontractors.
Once you are registered for CIS, all payments that relate to subcontractors’ earnings must be taxed directly at source and remitted to HMRC. This means it is the contractor’s responsibility to calculate and deduct the correct amount of tax due from the total earnings. The contractor then makes two payments: one to HMRC and the other to the sub-contractor who completed, and is invoicing for, the work.
The amount of tax due will depend on the registered status of the sub-contractor. You must verify individuals with HMRC so you know if they are Gross (no tax deduction required), CIS registered (20% deduction) or unregistered (30% deduction.)
As a contractor you must provide each subcontractor with a CIS voucher/certificate confirming the deductions made. In addition you will need to submit a CIS300 return to HMRC each month, this can be done online.
No matter whether you are a contractor, a subcontractor, or any business that works within the construction industry it is essential that you understand how CIS works.
As a contractor, any payments that are made to you under CIS should then be offset against the monthly or quarterly liabilities during the tax year. By doing this instead of at the point of end of year; the process for both National Insurance and Tax should be easier and smoother for you as a company as well as ensuring that any repayments can be paid quickly.
If you are a contractor, subcontractor or any business that works within the construction industry then you should know more about CIS and what it can mean for you. Why not get in touch with us here at Hudson Contact and make sure that you are in the know when it comes to tax repayments.