If you’re working in the construction industry, you’ve likely heard of the construction industry scheme (CIS), if not dealt with its complexities first-hand.
Your construction business may hire subcontractors who are part of the scheme and others who aren’t, making your tax reporting a challenge.
If you want to stay compliant with HMRC, it’s important to understand how the CIS works. Here’s everything you need to know.
What is the CIS?
The CIS is a way for HMRC to collect income tax throughout the year from self-employed workers in the sector. The scheme was introduced for two reasons: to protect workers from false employment and combat tax avoidance in the industry.
Under the scheme, the contractor (you) will withhold a percentage of the subcontractor’s pay and give it to HMRC, ensuring everyone meets their tax obligations.
How much are the deductions?
The amount a subcontractor will pay in tax depends on whether they are part of the scheme.
If your subcontractor is CIS-registered, you’ll only retain 20% to pay towards their tax and National Insurance, whereas an unregistered worker will have 30% deducted.
Do I need to register for the scheme?
As a contractor, you’re legally obliged to register for the CIS, whereas subcontractors can choose to be part of it.
You must register if you:
- pay subcontractors to carry out work
- don’t carry out the work but spend more than £1 million a year on construction.
Contractors have to register for the scheme before taking any subcontractors on for work.
What happens once I’ve registered?
Once registered, you’ll have to maintain accurate records for HMRC in order to create and file regular reports.
You should then verify all of your subcontractors – checking to see whether they are part of the scheme or not. Determining their status from the beginning will make things much smoother come payday.
When you run your payroll, you’ll have to deduct 20% from any CIS-registered workers and 30% from non-registered subcontractors. When you do this, be sure to check and double-check.
As you’ll have to report any CIS payments to HMRC, it’s essential to check whether you’ve collected the right amount from the workers.
During the registration process, you’ll already have set up a payment method, so make sure you’ve connected to the right bank account.
From there, you’ll need to file a CIS return with HMRC every month, providing an accurate representation of how much tax you’re collecting and paying forward.
Again, this is another point when you should carefully check your reports, as any mistakes could result in a fine. If you provide HMRC with an incorrect employment status for a subcontractor, you could face up to £3,000 in penalties.
Don’t risk any errors
Accounting for your construction business is already fairly complicated. You’ll already be juggling multiple VAT schemes, managing your contracts and CIS on top, so why not alleviate some of the pressure?
Our CIS services can share some of the weight, leaving you to focus on running your day-to-day operations.
To find out more about our CIS services, contact a member of the team.