What do I need to do as a CIS Subcontractor?
The Construction Industry Scheme (CIS) is run by the UK government that regulates how payments are made to CIS subcontractors within the construction industry. It was introduced to ensure proper taxation compliance and reduce tax evasion within the sector. The applies to both contractors and subcontractors involved in construction work. In this blog, we will guide you through the legal and taxation requirements that you need to adhere to as a CIS subcontractor.
Understanding the Construction Industry Scheme (CIS)
The CIS scheme is mandatory for all contractors and subcontractors working in the construction industry. The CIS covers various construction-related activities, such as building, repairing, decorating, and demolition work. It also covers civil engineering projects like road construction, bridge building and landscaping.
Registering for self-assessment
If you wish to register as a CIS Subcontractor, you must first register for a self-assessment. This means you are responsible for filing your tax return (SA300) by 31st January following the tax year ending 5th April. For example, your tax return for 6th April 2023 to 5th April 2024 will be due on 31st January 2025. Any tax due is also due for payment at the same time. If you miss the deadline for filing or payment, you can incur late penalties and interest.
Registering as a CIS Subcontractor
To work within the CIS, you must register with HMRC. The registration process involves providing relevant information and documents, such as your Unique Taxpayer Reference (UTR) and business details. Accurate registration is essential to avoid potential penalties and delays in receiving payments. You must register if you work for a contractor and you are self-employed, in a partnership or you run a limited company providing services in the above-mentioned trades.
Legal Compliance for CIS Subcontractors
- Verification of Contractor Status
Before commencing work with a contractor, you must verify their CIS status with HMRC. Ensure that your contractor is registered under CIS, as working with an unregistered contractor can lead to legal issues.
- Contractual Agreements
Make sure you have written agreements which clearly outline payment terms, project details, and any additional responsibilities. Having a signed agreement helps prevent misunderstandings and disputes.
- Health and Safety Regulations
Safety is paramount in the construction industry. You must adhere to health and safety regulations to prevent accidents and legal repercussions.
- Verification of Contractor Status
Keep all your receipts
Record Keeping and Reporting
Accurate financial records are vital for a CIS subcontractor. Maintain detailed records of income, expenses, and payments received. Additionally, timely filing of CIS returns is crucial to avoid penalties.
Claiming Deductions and Expenses
Maximize allowable deductions to reduce your tax liability as a CIS subcontractor. Eligible expenses can include tools, equipment, and travel costs related to your work.
Ask your contractor for your monthly CIS certificates
Understanding CIS Deductions
CIS subcontractor payments are subject to CIS deductions. These deductions are made by the contractor before transferring the remaining amount to you. CIS contractors must deduct 20% to be paid over to HMRC before making payments to CIS subcontractors unless you have been granted gross payment status.
Your contractor must provide you with monthly reporting on the deductions made from your payments. The reports must clearly state your gross pay, amount liable to deduction, the tax deducted and the net pay. View an example of a monthly CIS deduction certificate.
File your self-assessment tax return
Completing self-assessment tax returns is a necessary part of taxation compliance. Submit your tax returns accurately and on time to prevent penalties and legal consequences. CIS subcontractors are also responsible for paying National Insurance Contributions (NICs). Ensure that you meet your NICs obligations to avoid any future issues such as fines, penalties or reduced benefits in retirement.
Taxation Compliance for CIS Subcontractors
As a CIS subcontractor, it is essential to be well-informed about the legal and taxation compliance requirements in the UK construction industry. By registering with HMRC, verifying contractor status, and adhering to health and safety regulations, you lay the foundation for a successful and compliant business. Stay updated on tax laws and seek professional advice when needed to ensure that you are complying with all relevant regulations. If you need help with any of the five steps required to be a CIS subcontractor, give the team at Adams Accountancy a call on 01322 250001 for a free chat.