The construction industry scheme (CIS) serves the trades and construction industry. When you’re dealing with contractors and subcontractors, it can quickly become a nightmare keeping track of your subcontractors and what CIS needs to be deducted from their wages.
You may even suffer deductions on your income too as a contractor is you’re not registered as gross payment status.
With our help, we’ll keep you on track and you can be sure your CIS obligations are taken care of quickly, leaving you to get back to business.
Special tax rules apply to subcontractors working in the construction industry because historically subcontractors were paid in cash, and often that wasn’t reported to the HMRC.
The Construction Industry Scheme (CIS) is in place to govern the rules and set out how subcontractor’s payments should be processed by contractors.
You can be considered both a subcontractor and contractor under CIS, so it’s important that you understand your responsibilities and obligations of both.
Often subcontractors will have more tax deducted from their earnings than they need to pay, and as CIS is a blanket rate it doesn’t take into consideration the other expenses of the subcontractor, so in most cases a refund of tax is usually due.
We have extensive experience with CIS, including registering businesses for CIS, reporting monthly CIS deductions and making those important CIS refund claims. If you’re struggling to understand what is best, and when to do it – get in touch and we’ll help!
What is the Construction Industry Scheme (CIS)?
The construction industry scheme (CIS) is an HMRC scheme under which contractors are usually obliged to withhold tax on their payments to its subcontractors, at either 20% if they are registered with the HMRC or 30% if not.
This is to combat tax evasion in the industry, and to ensure subcontractors have same tax obligations as the employed with paying tax on account throughout the year.
What is a CIS Subcontractor?
A CIS subcontractor works on a contractual basis for a contractor, and they offer a particular set of skills that the contractor cannot fulfil.
The key point about subcontractors is that they form agreements/contracts with the contractor, not with the end customer, and the contractor is responsible for their work.
What is a CIS Contractor?
A CIS contractor is a person or a company that seeks to do business by obtaining contracts and carrying them out.
They may contract out work to other contractors, which will be known as subcontractors, and hold the responsibilities for the work completed for their customer.
If they work with subcontractors, a contractor will also be required to deduct CIS tax from the subcontractors pay at the point they make payment, and report and pay it over to the HMRC on a monthly basis.
How much CIS do I pay?
The Construction Industry Scheme (CIS) deduction rates are:
Registered subcontractors – 20%
Unregistered subcontractors – 30%
Gross payment status – 0%
These deductions must be reported and paid to the HMRC – they count as advance payments towards the subcontractor’s tax and National Insurance bill.
What does gross payment status mean?
Gross payment status means you do not need to have CIS tax deducted from your payments from contractors.
To be eligible for gross payment status, you must show the HMRC that:
You’ve paid your tax and National Insurance on time in the past
Your business does construction work (or provides labour for it) in the UK
Your business is run through a bank account
The HMRC will look at your turnover for the last 12 months, and excluding VAT and the cost of materials, your turnover (sales) must be at least:
£30,000 if you’re a sole trader (self employed),
£30,000 for each partner in a partnership, or at least £100,000 for the whole partnership,
£30,000 for each director of a company, or at least £100,000 for the whole company.
If your company is controlled by 5 people or fewer, you must have an annual turnover of £30,000 for each of them.
How do I check the status of a subcontractor?
Each subcontractor will have a status with the HMRC, and this dictates how much tax you should deduct from their payments.
Before you can pay a new subcontractor, you’ll need to ‘verify’ them with the HMRC, which will tell you whether they are registered for CIS and what rate to deduct tax from their payments.
You must also verify subcontractors you’ve used before if you have not included them on a CIS return in the current or last 2 tax years.
To verify a subcontractor, you will need their unique tax payer reference (UTR), national insurance number, and if they are a limited company the company UTR and registration number.
You will also need your businesses information, including UTR, and employer details (Employer PAYE reference and accounts office reference number).
Why choose us for CIS support?
CIS can be incredibly complicated, and costly if mistakes are made. As a business owner, you are legally responsible for all aspects of the business, including adhering to CIS rules, deadlines and paying taxes on time.
At Freedom in Numbers, we’re here to support your business, and take away the stress of the administrative side of business, giving you your freedom back.
We offer a monthly fixed fee service that it tailored to your business and will include all the services you’ll need to get started, including dealing with the HMRC on your behalf!
We will save you time and money.
We’re confident that you’ll love our brilliant customer service and have an excellent experience working with us.