Construction Industry Scheme services
Written by Ray Coman
The construction industry scheme (CIS) is a system for collecting tax from people providing labour services in the construction industry. A building contractor who hires subcontractors is required to register for CIS. The contractor will hold back an amount from the pay of the subcontractor at a rate of either 0%, 20% or 30%. The reason for the different CIS rates is explained below. The CIS deducted at source is paid over to HMRC. A subcontractor is self-employed and therefore required to file a Tax Return. The tax withheld from his or her pay is deducted from any liability. As there are expenses to deduct, a subcontractor often obtains a CIS refund when the Tax return is processed.
You are a CIS contractor if you run a business that hires a subcontractor for construction work, or a business that spends over £1 million per year on construction work. As an exception, a private householder is never a CIS contractor, although a person engaged to work in domestic premises who then hires a subcontractor will be a CIS contractor.
As a CIS contractor, you must:
- Register for the CIS scheme,
- Verify the registration details of your subcontractors with HMRC;
- Deduct tax from the subcontractors' pay at the correct rate,
- Provide a related payslip to each CIS subcontractor,
- Pay any tax deducted to HMRC together with a return every month.
We can assist and advise contractors in this process to ensure it runs correctly and you avoid the penalties for late and incorrect returns.
Where possible many contractors would rather avoid having to operate payroll, comply with employment law and suffer employers' national insurance. We can help review contract arrangements and advise on ways to ensure people you hire are subcontractors rather than employees for tax purposes. Please contact us to discuss your requirements.
As a CIS subcontractor you must register with HMRC to receive payments with tax deducted at 20%. Unregistered subcontractors have to pay tax at 30%. You may be able to register to receive payments gross provided you satisfy HMRC tests which include having turnover above £30,000. We can assist and advise in the registration process and where relevant on receiving payments gross. CIS deductions are an upfront payment towards your end of year liability. We can help CIS subcontractors complete Tax Returns and advise on any further tax liability or tax refund.
Many businesses are both CIS contractors and CIS sub-contractors and we can advise accordingly to ensure you do not overpay tax. Please contact us to discuss how we can help.