The Construction Industry Scheme (CIS) is a scheme that was brought in by HMRC to minimise the loss of revenue to the exchequer from self-employed construction workers in the construction industry failing to pay the correct amount of tax.
CIS is a tax deduction scheme where contractors make deductions at source from the subcontractors payments to cover their tax and national insurance contributions (NICs). The contractor will then pay this over to HMRC.
Before any construction work starts, both the contractor and the subcontractor must be registered for the scheme with HMRC.
You must register as a contractor if:
- your business pays subcontractors for construction work; or
- your business is not in the construction industry but does spend on average £1 million or more per year for construction work for any 3 year period.
You must register as a subcontractor if you do construction work for and receive payment from a contractor.
As a contractor there is a benefit to becoming registered in that a lower deduction will be made from your salary and so you take home more!
For registered subcontractors, the contractors will make a 20% tax deduction to their salary. This is compared to unregistered contractors who will receive a 30% deduction.
However, you do have the opportunity to apply to HMRC to pay all your own taxes and NICs yourself at the end of the tax year meaning, you will be paid in full with 0% deductions made to your salary. For this to apply your business must have turnover of at least £30,000 and you must be able to demonstrate a good compliance tax record through paying all your taxes and NICs on time previously.
Details on how to register can be found on the HMRC website here, https://www.gov.uk/government/organisations/hm-revenue-customs/contact/employer-enquiries-support-for-new-employers
Subcontractors – paying your taxes and claiming back the deductions
Sole traders / partners: You will be required to submit a self-assessment tax return declaring separately, your total amount of invoices raised as your income and any CIS deductions made by the contractors. This will calculate any additional tax that you owe to be paid by 31 January in the following year or, any rebate for tax that you have over paid.
Limited companies: For CIS deductions you have paid, you will need to claim these back through your monthly payroll submissions. When you send your monthly Full Payment Submission (FPS) to HMRC, also submit an Employer Payment Summary (EPS) stating the total CIS deductions made for the year to date. This will calculate any additional tax that you owe to be paid by the 19th in the following month or, rebate for tax that you have overpaid.
If you have gross payment status, you will be required to declare all your businesses income in the usual way through your company corporation tax return.
CIS can be confusing and filling out a tax return an administrative burden. Whether you are a sole trader or a limited company, let Invicta Accounting Ltd help you by taking all the hassle away!
You may have incurred expenses that you didn’t know that you were entitled to. Our expertise and experience will ensure that you are claiming the correct amount to maximise your tax rebate all with the peace of mind you are compliant with HMRC.To see how Invicta Accounting can help you, give us a call today on 01624 672358 or drop us an email at firstname.lastname@example.org.