What does a CIS contractor have to do?
If you work in the construction industry and you use sub-contractors, you are responsible for ensuring that you follow the Construction Industry Scheme (CIS) taxation rules which require you to make advance tax payments to HMRC for those subcontractors. The CIS is run by the UK government and was introduced to combat tax evasion within the building and construction sector. Read on to find out what you are legally required to do to meet your obligations as a CIS contractor.
What is Construction Industry Scheme (CIS)
The CIS scheme is a mandatory requirement for all contractors and subcontractors working in the construction industry. If you work on building projects, it’s likely you will fall under the CIS scheme. There are several requirements you must fulfil if you hire subcontractors for your construction projects.
Register for CIS before you take on your first subcontractor
You may be required to hire the person as an employee rather than as a subcontractor. You can check employment status here. If you hire someone as a subcontractor when you should have employed them, you may get a penalty.
Check that the subcontractor is registered with HMRC for CIS
Verify your subcontractor’s status online and check what percentage deduction you should make from their pay. You will need the following information to check that your subcontractor is registered for CIS:
- your Unique Taxpayer Reference (UTR)
- the reference number for your HMRC accounts office
- your HMRC employer reference
- your subcontractor’s NI numbers, their UTR, company name & registration number and their company UTR
Make appropriate deductions
You will usually need to deduct 20% from your subcontractor’s pay and send HMRC these deductions monthly.
If your subcontractor is not registered with CIS, you will be required to deduct 30% from their pay instead of 20%. Some subcontractors have gross payment status which means that you are not required to make any deductions from their pay.
Calculating the correct deduction
To work out the amount of the deduction, start with the total of the subcontractor’s invoice. Then make the following deductions (as listed on HMRC website):
- equipment which is now unusable (‘consumable stores’)
- fuel used, except for travelling
- equipment hired for this job (‘plant hire’)
- manufacturing or prefabricating materials
- materials (only if they paid for them directly)
Once you have the net pay liable to CIS, apply the appropriate percentage.
You must file monthly returns to HMRC and provide your subcontractor with a CIS certificate each month. Make sure you keep your records accurately and up to date or you could incur a fine of up to £3,000 if you cannot produce them when asked by HMRC.
If there are any changes in your business, you must keep HMRC up to date. If you become aware that you aren’t going to make any payments to subcontractors for up to six months, you can ask HMRC to adjust your status to inactive and you will not be required to make any CIS returns during that period.
Support for CIS contractors
At Adams Accountancy, we support CIS contractors who don’t have time to manage all the admin around the scheme. It can be challenging enough running a business without having to worry about all the tax compliance. We can take away that headache for you so you never have to worry if your CIS returns are up to date or concern yourself with the status of a subcontractor. If you’d like someone else to handle your CIS admin, get in touch with the team at Adams Accountancy by calling 01322 250001 for a free no-obligation chat about our comprehensive accounting and compliance services.