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What Is the Construction Industry Scheme (CIS)?

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If you work in the construction industry, you need to understand what the Construction Industry Scheme is – as it directly impacts you.

The Construction Industry Scheme, also known as CIS, is a tax that increases revenue within the construction industry. If you are a contractor, this means you must deduct funds from your subcontractors’ payments and inform HMRC.

In this blog post, we explore CIS in more detail, including what CIS covers, how to register, what happens if you fail to pay, and how our team of expert accountants at LJS Accounting Services can help you with CIS tax disputes.

 

What is Covered Under the Construction Industry Scheme?

Companies based outside of the UK, but contracted in the UK, are covered within the scheme. The scheme applies to workers who are self-employed under the terms of the contract, and who are not employees subject to Pay As You Earn (PAYE).

The government’s CIS scheme applies to a broad range of trades and professions operating within the UK construction industry. The scheme covers all construction work being carried out in the UK; including jobs such as:

  • Site preparation
  • Alterations
  • Dismantling
  • Constructing
  • Repairs
  • Decorating
  • Demolition

 

How to Register for CIS

Those who pay subcontractors for construction work, must register as a contractor. This must be done before you take on any subcontractor. Businesses should ensure that the person should be subcontracted, rather than employed. Contractors should also check that the subcontractor is verified through HMRC.

Failure to do this can result in a penalty. When you pay subcontractors, most of the time you will need to make deductions from their payments, pay the money to HMRC, file monthly returns and keep full CIS records. If you don’t, you may get penalised. Variables for deductions include:

  • VAT
  • Materials
  • Equipment which is now unusable
  • Fuel used
  • Equipment hired
  • Manufacturing or prefabricating materials

 

If you’re a subcontractor, you aren’t required to register for CIS, but you can. If you register as a subcontractor, you will pay a lower amount to HMRC every month – HMRC calculates deductions as 20% instead of the higher rate of 30%.

 

What If You Fail to Pay?

If you’re a contractor, you are responsible for deducting the right amount of tax from your subcontractors. If you don’t notify HMRC of your payments, or give the wrong employment status, you could face a fine of up to £3,000.

Make sure the returns are completed by the 19th of each month (For the previous tax month). For example, April’s return must be made on the 19th of May. You could be faced with penalties beginning at £100 for late returns.

 

CIS Deductions Explained

The final action is to deduct the CIS percentage rate (as given by HMRC). This will leave you with the net amount of payment required to pay the subcontractor. If circumstances arise in which payments to subcontractors are not to be made for up to 6 months, HMRC can make the scheme inactive upon enquiry.

For sole traders and partners, CIS tax deductions should be stated in your Self-Assessment tax return. The full amounts on your invoices and any CIS deductions contractors have made should be recorded. HMRC will calculate tax and National Insurance bills, as well as deductions made by contractors. If you are due a tax refund, HMRC will pay this back to you after this process.

Limited companies within the construction industry must claim CIS deductions through the company’s monthly payroll scheme. Penalties may arise from attempting to claim CIS deductions through Corporation Tax returns.

Claims must be done through submitting monthly Full Payment Summary (FPS) to HMRC. Employer Payment Summary (EPS), with CIS deductions for the year to date must also be sent. HMRC will use this information and take your CIS deductions away from what you owe in PAYE tax and National Insurance.

Companies which enter administration or liquidation should ensure the person with the most managerial power writes to HMRC. This is in order to enquire for the CIS deductions to be repaid immediately. This is done through the post and not electronically.

 

Help With CIS Tax Disputes

At LJS Accounting Services, we can also assist you with any CIS Tax Disputes. The value and efficiency that professional, experienced accountants at LJS can offer is crucial to a successful and expanding construction sector company.

Not only would this provide a faster process, but there is the opportunity to utilise the accountant’s knowledge and experience, in order to receive the largest return possible for your business and avoid any penalties.

For more information on CIS and our CIS services please get in touch on 01516010000 or email us at info@ljsaccountingservices.com.

 

Key Takeaways

  • CIS applies to contractors and subcontractors in the UK
  • Contractors are required to make tax deductions on behalf of their subcontractors
  • Contractors need to register for CIS before taking on a subcontractor
  • You could face a fine of up to £3,000 for failing to notify HMRC or providing the wrong employment status for a subcontractor
  • Our team at LJS Accounting Services can help with CIS tax disputes

 

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