What is CIS and what you need to know about it

CIS Construction Industry Scheme

What is CIS ?

CIS (i.e. the Construction Industry Scheme) is, just like its name says, a scheme under which tax is deducted from subcontractors working in the construction industry. The tax is collected on behalf of HMRC by contractors in the construction industry every time they pay their subcontractors.   

While registration is obligatory for contractors, it is only voluntary for subcontractors. If you work as employee for a constructor you do not fall under CIS.

In this blog we will detail and clarify some of the most important aspects contractors and subcontractors in the construction industry need to know about CIS.

Types of work under CIS

The type of work that falls under CIS is construction work done as contractor or for a contractor in the construction industry. Any type of construction work done directly for a homeowner is not regulated by CIS.

Generally, CIS covers all building and civil engineering work, demolitions and dismantling, site clearing, alterations, repairs and decorating, installation of power systems, as well as heating, water and ventilation systems. It also includes preliminary works for preparing a site for construction work such as laying foundations, providing access works, installations of temporary offices, etc. It also includes cleaning works inside buildings after construction work has been completed.

If you are self-employed

If you are self-employed and work as sub-contractor for a construction company, you should be registered with HMRC for the CIS scheme. Regardless of whether you are registered or not though, CIS will be deducted from you every time you are paid. However, if you are registered for CIS, then tax will be deducted from you only at 20% of the gross pay rather than at 30% if you were not registered.

If you are registered for CIS, then these deductions count as advance payments towards your income tax and towards your national insurance contributions. In the end of every tax year, when you submit your self-assessment tax return (also known as personal tax return), if the amount of tax and national insurance you owe HMRC is greater than what you have already paid as CIS, then you will still owe HMRC the balance. But this balance will be significantly lower than the total amount of tax you owe, so it will be easier for you to pay it. However, if the self-assessment tax return reveals that you have paid HMRC more under CIS than your total tax due, then HMRC will issue you a refund.

It is important to note that registration for CIS is different than registration for self-employment with HMRC for Self-Assessment Tax Return purposes. In other words, your registration for CIS is in addition to your registration for self-employment.

The contractor has the obligation to issue you statements of payments and deductions. You must keep these statements because you will need them for your self-assessment tax return. Also, it is important to note that you have the legal obligation to keep records for at least 6 years. These records will have to be kept in digital form as HMRC is at the moment rolling out Making Tax Digital for Self-Assessment (MTD ITSA).

If you are a contractor

If you work in the construction industry and pay subcontractors for various types of construction work, then you are a contractor under the CIS scheme and must register with HMRC.  

It is your obligation to establish whether workers you pay are employed or self-employed. CIS applies only to self-employed workers. You will need a subcontractor’s UTR (Unique Taxpayer Reference) and NIN (National Insurance Number) to be able to verify whether they are registered for CIS or not.

When you pay a subcontractor, you have to verify whether they are registered for CIS with HMRC or not. If they are, then you will deduct from their payments 20% CIS and send this payment to HMRC. If the subcontractors you are paying are not registered for CIS with HMRC, then you will deduct 30% CIS from their payments and send it to HMRC. These payments to HMRC are obligatory as they will count towards the subcontractors’ total tax and national insurance contributions.

You must issue to the subcontractor a payment and deductions statement with 14 days of the end of each tax month. The statement must show the contractor’s name and reference, details of the payment(s) made, the cost of any materials incurred and the deduction(s) made from the payment(s).

Now might be the ideal time to engage the services of an accountant to do all the work for you and provide you with all the tax advice you need.

Don’t hesitate to get in touch for any further inquiries at: info@las-accounting.co.uk

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